Chapter 11 - Bear Hug, February 19 – 25, 2002 - episode 5Listen to podcast
At midnight, Board members Joseph Windaw and Joanne Ankers join Larry, Donna, and Aaron on a conference call. Franklin Adams was unreachable. Larry describes his call with George Wrobly, only slightly downplaying the heat of his own reaction.
“Obviously,” says Joanne, “we have to listen to what they have to say. This is not a good time for the company. A combination may well make sense.”
“This combination doesn’t make a whole lot of sense,” argues Larry. “Not to me. Wrobly’ll run the combined company into the ground. And the company’s not doing that badly. The market is doing badly. That’s a very different thing. We’re responding. Our new service will be a big help. This isn’t the time to fold.”
“Can’t fault their timing with our stock under a buck,” says Joe Windaw. “Frankly, though, I don’t like the way Wrobly approached you. I think it was insulting. I don’t think it speaks well of him. But we are still going to have to listen. Aaron, what do you think’ll happen next?”
“I think there’s a good chance they’ll try a bear hug,” says Aaron. “I think we may see a letter in the morning with a specific offer in it plus a deadline for responding. They’ll know that we have to make something that specific public. We can’t just quietly turn it down. They won’t want to go hostile so that will be their attempt to force us into ‘friendly’ negotiations.”
“Friendly, my ass,” says Larry. “I don’t get ‘forced’ into anything and then call it ‘friendly’. If they want to fight, we should fight. There’s nothing fucking friendly about this.”
“Larry, it’s not about you,” says Joanne. “It’s about what’s best for the shareholders. Under the right circumstances, Big Router would be in favor of a sale of the company.”
“Joanne,” says Donna, tartly, “when we’re meeting as a Board, you don’t represent Big Router; you represent the interests of all the shareholders. I hope you remember that.”
“I resent that. I am perfectly well aware of my fiduciary responsibilities. I want to remind you, however, that Big Router does not have a fiduciary responsibility to anyone when it votes its shares. It can and will do that in its own best interest — in the interests of the shareholders of Big Router. We are also free to sell our shares—”
“At the moment,” says Aaron, “I think I should point out that we are all in possession of material insider information and are likely to be in that state through any negotiation. We are not free to trade the stock or cause others to do so.”
“I KNOW that,” says Joanne. Her teeth are clearly clenched. “IT IS NOT in the INTEREST of ANYONE to entrench hackoff management — except maybe management itself.”
“Let’s all calm down,” says Joe. “It’s late and this discussion isn’t fun for anyone. I’ve been through more of them on both sides than I care to remember. Aaron, assuming you’re right that they’ll try a bear hug — and I would bet they are, ‘cause it’s what I’d do — assuming you’re right, what’s our next move going to have to be?”
“Well, I’ve already discussed it some with Larry. We’re going to need to engage special takeover counsel and we’ll need bankers to evaluate the proposal and give us an opinion…”
“I have a problem with that,” says Larry. “Okay, look, if they make a reasonable proposal, if they were to offer five dollars a share, for example, sure we’d have to look at it. And we probably need to pay bankers a couple of million dollars to look at it, too, just to cover our asses. I understand that. But that’s not gonna happen. What’s gonna happen is they’re gonna make some ridiculous low-ball bid to try to take us out now when we’re weak. We even LOOK like we’re considering it; we hire bankers to look at it and all that bullshit; it looks like they’re in the ballpark and either they get us cheap or someone else does. I say when we get their bullshit offer we say in the right legal language: ‘Bullshit. That offer is crap. End of story.’ If it turns out I’m wrong, if they make a real offer, fine; we look at it. But that isn’t gonna happen. Anyone wanna bet?”
“How do we know what’s a reasonable offer?” asks Aaron rhetorically. “I mean in a legal sense. Sure, if they offer us less than we’re trading for, we could probably claim that the market has set a price for us and they’re below it. Even then, there may be some case law the other way. But the argument cuts both ways. If they offer us more than we’re trading for, how does the Board justify turning it down out-of-hand? If a banker says it’s too little; that’s one thing and we can act on that. We get sued anyway, but it’s probably not too bad. But just on our own, how do we justify saying ‘no’ and not even being open to negotiation? I think that’s a dangerous path.”
“So,” says Joanne, “we’re going to be negotiating with them no matter what, so I think management needs to be realistic about that.”
“Wrobly called me, too,” says Donna.
“What?” Larry shouts. “WHAT? Why didn’t you say anything?”
“He called me after you called me.”
“Why didn’t you say anything now? You—”
“I didn’t get a chance, Lar. You were telling the story. But I think before we go rushing off negotiating with these guys everyone needs to understand, the Board needs to understand, that they have not been acting properly. The call to you was marginal; the call to me was completely out of line.”
“Why did you talk to him?” Larry demands.
“I didn’t know what he was going to say. I had to listen to find out what he was going to say. I also feel I have a responsibility to shareholders to go the extra mile to listen. And, if we decide to fight, then anything I learn is helpful.”
“What did he say?” asks Larry.
“He tried to bribe me. He offered me a big package if I would ‘cooperate with the transition’ and sign a non-compete.”
“Why’s that a bribe?” asks Joanne. “Did he say this was in return for your vote as a Board member?”
“No,” says Donna. “Not in those words. He didn’t have to. It was very clear what his intent was. There would be no transition to cooperate with if the Board votes his offer down.”
“I don’t think that sounds like a bribe,” says Joanne.
“Contacting Donna directly at this point was in very poor taste,” says Joe. “It was at least that. Donna, did he offer you the position of CFO of the combined company? A raise? More options?”
“He just talked about transition,” says Donna. “I think he was waiting for me to ask for that, frankly, but I wasn’t about to initiate that sort of discussion or even continue the discussion once it was clear he was trying to bribe me.”
“I still don’t think it’s clear,” insists Joanne.
“Aaron,” says Larry, “this guy makes a couple of improper calls. He calls me with lawyers on the line; doesn’t tell me. Then he calls Donna; offers her a bribe or comes very close. Just think about it, doesn’t that give us some room when we respond? Any reason we can’t make public what an asshole he is; how he’s trying to bribe management not to work in the best interest of the shareholders?”
“Do we have any evidence for this?” asks Aaron.
“I taped the call,” says Donna. “Thought it might be a good idea.”
“I’ll listen to the tape if that’s okay,” says Aaron. “See how helpful it is.”
Aaron advises the Board that, after they receive a formal letter with an offer, they will only be able to keep it confidential for a limited period of time. Relevant security law requires them to report significant events but does allow some latitude for the need to negotiate in private. Specifically, he tells them, if they are engaged in serious discussions and the results are not known because, for example, terms have not been agreed, they are probably safe in not making a public disclosure. However, if word should leak out of their discussions or if they have any good reason to think word is going to leak out, then they will be obliged to disclose them promptly.
Likewise, he tells them, if a definite offer is made and they reject it, they must almost assuredly have to reveal the offer, their rejection of it, and — most dangerous from a potential litigation point of view, their reasoning in rejecting it. This is why, he tells them, they need to hire both an outside counsel skilled in takeovers AND a banking firm to give them an independent view of the value of the company and thus a defensible reason for rejecting an offer.
After a long argument, Larry agrees to engage outside counsel first thing in the morning. His exhausted Board of Directors agrees not to require him to begin the process of engaging an investment banker unless and until they actually receive an offer. Larry holds out the possibility that an offer will be so patently absurd that they can simply reject it out-of-hand and eliminate the need to hire a banker. Joanne strongly disagrees. Joe weakly disagrees. Donna points out that, in any case, they really don’t have to make a decision until they see what they receive from antihack.
So they decide not to decide on whether to engage a banker until they receive something from antihack and until they consult the takeover lawyer Aaron will hire in the morning.
“Is my tape of what Wrobly said enough to stop them?” Donna asks Francis as she prepares to join him in bed. It is 1:30 AM.
“Probably not. I’d win a case against you in a New York minute if you don’t at least listen to them, even with the tape. Aaron’s right that it might buy you some time, though.”
“Actually, it was Larry who said that.”
“He a lawyer now, too? Anyway, you don’t listen, you don’t have a good reason for turning them down, you get your ass sued.”
“You going to sue my ass again?” asks Donna softly.
“Not what I had in mind to do with it.”
“You take your purple pill?” She pulls back the covers. “Oh yes you did. That’s huge. How long’ve you had that?”
“About an hour waiting for you to get off the phone. I’m gonna be a wreck for my client meeting in the morning.”
“This one of those four hour or more jobs they talk about in the ads?” asks Donna, wrapping her hand around his extremely stiff prick. “You know if you have one of these for more than four hours we’re supposed to take you to the hospital make sure you get treatment. What shall we do with him?” She is naked now and rubs his prick between her breasts. “Can we make him even bigger?”
“He’ll burst. You want him to blow up all over you or in you?”
“Oh, definitely in.” She straddles him.
“The other way,” he says. She turns around facing his toes and places the tip of his prick at the entrance to her cunt.
“I said the other way,” he says.
“Ouch,” she says. “That’ll hurt. I want him in here.” She lowers herself onto him. He lies very still. His long body is thin, almost emaciated. He has straggly pubic hair, a few hairs on his chest and his armpits, no other body hair visible.
“I’ll make you a deal,” she tells Francis. “He comes in here like a good boy and I’ll probably be so excited, he stays stiff, you can put him anywhere you want. Do whatever you want with him for the next three hours until we have to take him to the hospital, get him reduced.”
“We should be so lucky,” he says, but thrusts upward.
February 25, 2002
Mr. Lawrance Lazard
Chairman and CEO
65 Broad Street
New York, NY 10004
Dear Mr. Lazard:
The Board of Directors of antihack, Inc. have authorized me to approach you in your role as Chairman of the hackoff.com Board of Directors in order to propose the acquisition of hackoff.com by antihack, Inc. The Directors have authorized me to extend a conditional proposal to tender for hackoff.com common stock in an exchange for common stock of antihack which will be issued for this purpose. The proposed exchange ratio is one share of antihack stock for each 2.5 shares of hackoff.com. As you are aware, valued at the close of the NASDAQ yesterday, this represents a premium of 25% for holders of hackoff.com common stock.
At the completion of this transaction, we anticipate that former holders of antihack common will own 70% of the combined company and former hackoff holders will own 30%. This ratio was calculated based on our best knowledge of the number of hackoff shares outstanding from your most recent public filing.
This proposal is not binding on antihack at this time but is extended in sincerity to advance a combination which we believe is in the best interests of the shareholders of both companies.
This proposal is conditioned on several factors some of which, without limitation, are:
- acceptance of this ratio as a basis for more detailed discussions by the hackoff.com board no later than midnight February 27, 2002 including a 30-day “no shop” provision;
- a timely definitive agreement approved by the boards of both companies;
- favorable fairness opinions rendered by qualified investment bankers for both firms;
- successfully obtaining all regulatory approvals including, without limitation, Hart-Scott-Rodino;
- successful completion of due diligence by antihack and its agents;
- the receipt of various warrants and representations from hackoff officers the exact content and form of such warrants and representations to be specified later;
- approval by the Securities and Exchange Commission of an appropriate proxy to be distributed to shareholders of both corporations;
- agreement by NASDAQ that the shares of antihack as the surviving corporation will continue to be listed by and traded on that exchange;
- favorable votes as required by applicable Delaware law by the shareholders of both corporations;
- such other conditions as are usual and customary in transactions of this sort.
The Board of Directors of antihack, Inc. reserve the right to withdraw this proposal at any time with or without cause.
Larry, I sincerely hope that you and your Board will respond to this proposal in the constructive spirit in which it is offered. I and my Board believe that a combination of hackoff and antihack will be favorably viewed by both financial markets and customers. We believe that there are substantial synergies possible in such a combination and that the combined entity will have an enhanced ability to compete in a very competitive market segment.
We have kept knowledge of this proposal to a very small circle of people with a need to know. It is our hope that you will do the same until we are able, within the next couple of days, to make a positive joint announcement. At that point, we will be able to allay some of the natural concerns that employees of both companies may have and make clear to customers that this combination is very much in their interest. Of course, whatever the outcome, we believe that this proposal is significant material information that will need to be publicly disclosed in the near future in a way fully compliant with Regulation FD and other relevant laws and regulations.
If you and your Board have any questions about this proposal which would be helpful to you in reaching what we hope will be a favorable decision, please do not hesitate to contact me either at the antihack offices, at my home (914.555.6980), or on my mobile phone (917.555.4756). I will be available to you at any time night or day.
Yours very truly,
Chairman and CEO