Meeting To Merge (2)

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During the week leading up to our next meeting with Bob and Mary Pat, we met with our original shareholders and the representatives of venture Funds, Inc. (VFI), Kate, Daniel and Susan, to discuss how to accomplish the merger with Blog Topics, Inc. (BTI).  Although supportive of the idea, none of the shareholders want to have BBE issue enough common stock to upset the existing share structure of BBE.  VFI, in addition to its common shares, also owns 600 shares of cumulative, convertible preferred shares with a par value of $100 per share and a dividend of 2% per annum.  After further discussion, we formulate a plan for negotiating the merger as a stock swap for the common shares of BTI.

Bob and Mary Pat arrived for the second meeting with their legal counsel, Dennis, and two of their blog writers, Will and Catherine.  BBE was represented by Alice, our president.  She was joined by Daniel, on behalf of VFI, Carl, our attorney, and me.  After some preliminary pleasantries, we got down to business.  Carl had advised us that one of the basic rules of negotiation was to have the other side name their price first.  If the amount expected by Bob and Mary Pat was too high, we could start to whittle them down.  If they offered less than we were willing to pay, then we immediately started out ahead of the game.  Dennis, an experienced mergers and acquisitions lawyer, deflected Carl's question of price by suggesting that we start with the structure of the merger.  He confirmed that Bob and Mary Pat want to avoid taxes to the extent possible so they did not want cash for their BTI shares.  Everyone readily agreed that a stock exchange, a swap of BTI shares for BBE shares, was the preferred form of merger.

Bob and Mary Pat were interested in receiving a fixed amount of income to fund their retirement.  They looked forward to spending their summers on Lake Michigan and wintering in Cabo San Lucas.  Daniel proposes an issuance of BBE preferred stock with a fixed dividend.  Since VFI owns the previously issued series of BBE preferred shares, the ones to be held by Bob and Mary Pat would be second series preferred shares.  Their preferred shares would be subordinate to VFI's preferred shares.  This means that, in the event of a liquidation of BBE, VFI would have its preferred shares redeemed prior to those owned by Bob and Mary Pat.  VFI's preferred shares would have a prior claim to the assets of the company.  Since their shares would also be preferred, Bob and Mary Pat would have their shares redeemed before any common shares.  After some discussion, we agree that the BTI shares would be exchanged for a combination of preferred and common shares.

When VFI invested in BBE, it wanted to share in the growth prospects of the company in addition to the fixed dividend paid on its preferred shares.  As a result, it also bought a minority percentage of the common shares.  Both VFI and the original shareholders want to keep the present balance of control in the common shares of BBE.  Bob and Mary Pat seem to accept this structure, assuming we reach a mutually acceptable price for their shares of BTI.  Their lawyer, Dennis, indicated that there might be certain other terms on which agreement had to be reached, but he would save those for another meeting.  Bob and Mary Pat then reiterate their desire that their five blog writers are protected in the negotiations.  We had already assured them that no blogger would lose his or her position with the company.  

Will and Catherine, the two senior BTI bloggers, attended the meeting to represent the other bloggers.  Will, a famous Irish playwright with an English knighthood for his efforts, had been the first writer to join Bob and Mary Pat when they started the company.  He had quickly developed a devoted following to his blogs on live theater and the entertainment industry in general.  Revealing his Irish humor, he had jokingly asked, when we were introduced, to be addressed as "Sir."   Catherine had been with BTI almost as long as Will.  Before joining the company, she had authored several highly acclaimed historical  novels.  Like Will, she had become a very successful blogger, posting weekly on American historical events and their relevance to the country today.  They confirmed that none of the bloggers had any interest in owning or managing BTI; however, they felt that the blogging staff should receive some financial consideration if they agreed to continue their blogs under the BBE banner.

Carl, our attorney, indicated that the blog writers might receive some common shares of stock in BBE so they would have an equity interest in the company and its success; however, the present balance of voting control had to be maintained.  He suggested that BBE might issue a second class of common shares to Bob, Mary Pat and the writers.  These shares could have different voting rights.  Having reached the broad outlines of an agreement, we agreed to meet again next Monday.

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