Unwanted Attention (2)

WALL STREET SMARTS, THE BLOG, IS NOW WALL STREET SMARTS, THE BOOK.  FULLY EDITED AND REVISED WITH NEW MATERIAL ON AMAZON

Daniel's announcement that Venture Funds, Inc. (VFI) had agreed to sell both its common and preferred stock in BBE to Gobble, Inc. came as quite a shock to us.  We had assumed that when Gobble's tender offer to our shareholders had not garnered the necessary number of voting shares to gain control of BBE, it would have given up its efforts to acquire us.  It seems that such is not the case.  Gobble's purchase of a minority interest in the common shares reminded Mary Jo, our CFO, of the fabled Trojan Horse.  Gobble would now be on the inside of our company, entitled to all of the financial information normally provided to shareholders.  Although we could easily continue to pay the annual dividend on the preferred shares Gobble was buying from VFI, it would be an uncomfortable situation.  Those preferred shares could be converted into common shares if BBE failed to pay the annual $1,200 dividend for a three year period.  If those non-voting preferred shares became 6,000 voting common shares, Gobble would have a majority of the votes and could elect a new Board of Directors.  They could then could force a merger of the companies.  Although their tender offer had failed, Gobble was not giving up its fight to acquire BBE.

No amount of argument could dissuade VFI from its very profitable sale to Gobble.  We were faced with the reality that the fox was now in the hen house.  Not unexpectedly, Gobble mounted an effort to persuade the shareholders to throw in with it at the next annual shareholder meeting.  They launched a proxy fight in the weeks before the meeting.  Each shareholder has one vote for each share of stock he or she owns.  If a shareholder can not attend the shareholders' meeting but still wished to vote, the votes could be cast by an individual authorized to vote them in the shareholder's absence.  Such a written authorization to vote shares is called a proxy.  If Gobble was able to convince enough shareholders to give it their proxies and vote in a new slate of Directors, Gobble could gain control of BBE without owning a majority of the voting shares.

We had to face the fact that, as word of the $55 paid by Gobble for each of VFI's common shares spread among our shareholders, the idea of receiving such a profit on their own stock would appeal to many of our long time shareholders.  We had only one alternative to offer our shareholders against Gobble's efforts: take BBE public.  Our argument was that turning BBE into a publicly traded company would offer shareholders the opportunity to sell their long held shares at a price which might be higher than the one that Gobble had offered them earlier.  We warned them that if Gobble did gain control of the Board of Directors and forced a merger, the price our shareholders might receive could be less than the tender offer or what was paid to VFI.

On the day of the shareholder meeting, we prevailed.  Gobble did not receive enough proxies to gain a majority of the votes.  We now had to undertake the task of going public.

We will examine that process in the next blog.

Comments are always welcome.