Priddy v. Edelman
| Decision Date | 23 February 1988 |
| Docket Number | Civ. No. 86-73941. |
| Citation | 679 F. Supp. 1425 |
| Parties | Raymond Alton PRIDDY, Plaintiff, v. Asher B. EDELMAN, Plaza Securities Company, FH Acquisition Corporation, FH Partners, L.P., FH Management Corporation, Fruehauf Corporation, Robert D. Rowan, Frank P. Coyer, Jr., Thomas J. Reghanti, Russell G. Howell, Jack Breslin, Donald F. Chamberlin, John P. Grace, John C. McCabe, Dean E. Richardson, Francis J. Sehn, James S. Wilkerson, Merrill Lynch & Co., Inc., Merrill Lynch Capital Markets of Merrill Lynch, Pierce, Fenner & Smith, Incorporated, LMC Holdings, Inc., LMC Acquisition Corporation and Kidder, Peabody & Co. Incorporated, Defendants. |
| Court | U.S. District Court — Western District of Michigan |
Sidney B. Silverman, Silverman & Harnes, New York City, for plaintiff.
William M. Saxton, Butzel, Long, Gust, Klein and Van Zile, Gregory Curtner, Miller, Canfield, Paddock and Stone, Ronald Longhofer, Honigman Miller Schwartz and Cohn, Detroit, Mich., Andrew Zack, Davis Polk & Wardwell, New York City, for defendants.
Plaintiff filed the complaint in this case on September 17, 1986, "individually and representatively on behalf of all holders of shares of common stock of Fruehauf." (Complaint ¶ 2(b)) He named as defendants two groups of parties who previously have been before this court in litigation against each other in Plaza Securities Company, et al. v. Fruehauf Corporation, et al, and Fruehauf Corp., et al. v. Edelman, et al., 643 F.Supp. 1535 (E.D. Mich.1986). This court's preliminary injunction in that matter was affirmed with modification by the Sixth Circuit Court of Appeals. Edelman, et al. v. Fruehauf Corp., 798 F.2d 882 (6th Cir.1986). Those lawsuits were voluntarily dismissed on August 22, 1986. In addition to the original parties, Plaintiff has added Kidder, Peabody & Co., Inc., Merrill Lynch & Co., Inc. and several Merrill Lynch subsidiaries, as defendants. All of the Merrill Lynch defendants hereinafter will be designated as Merrill Lynch.
The initial Fruehauf litigation commenced in March of 1986 when Asher Edelman, through his limited partnership, Plaza Securities, became the unwelcome suitor for control of the Fruehauf Corporation, and Fruehauf's Board and management turned to the Merrill Lynch subsidiary, LMC Holdings, as their White Knight. The Edelman group initiated the first of these lawsuits when Fruehauf management refused a request for the list of shareholders which the Edelman group needed to use in an attempt to elect supporters as Directors at the May 1, 1986 annual meeting. Although the list was ultimately obtained, the Edelman group failed to win a voice on the Board. Having made approximately five unsuccessful offers to the Board and management for the company, it then commenced a tender offer on June 11, 1986. That offer was for all outstanding common stock at $44.00 per share, closing on July 3, 1986.
The Fruehauf Board then convened a special meeting at which it was advised by Kidder Peabody, its financial advisor, that Edelman would probably succeed in taking over the company. Soon thereafter the Board approved a leveraged buyout proposal designed by Merrill Lynch and Kidder Peabody which would place the company in the ownership of a newly formed Merrill Lynch subsidiary and Fruehauf management, and announced a tender offer commencing June 27, 1986.
The Edelman group then requested a preliminary injunction against the Merrill Lynch-management tender offer, and the Fruehauf group sued to enjoin the Edelman tender offer. A shareholder, Mr. William Steiner, also sued the Fruehauf defendants seeking, as Edelman did, to enjoin the Merrill Lynch-management leveraged buyout on behalf of all common shareholders. The motion for preliminary injunction in that case, Steiner v. Fruehauf, was heard and decided with the two previously cited. That case remains pending in this court.
This court's opinion, containing its findings of fact and conclusions of law in granting Edelman the requested relief and denying the requests of Fruehauf and Steiner, has been published and will not be restated here.
The Sixth Circuit wrote, at 798 F.2d at 886, as follows:
Once it becomes apparent that a takeover target will be acquired by new owners, whether by an alleged "raider" or by a team consisting of management and a "white knight", it becomes the duty of the target's directors to see that the shareholders obtain the best price possible for their stock.... When, in violation of this duty, directors take measures that are intended to put an end to the bidding, those measures may be enjoined.
That court's injunctive order concluded in the following terms, at 798 F.2d at 891:
The material facts concerning the conduct of defendants herein after the August 8, 1986 order of the Sixth Circuit have been presented by the defendants in the affidavits, depositions, and exhibits filed with their motions for summary judgment, and are undisputed.
A special committee of Fruehauf's outside directors previously had been appointed by the Board to study and make recommendations concerning offers made for the company. The committee was advised, as was the entire Board, by Kidder Peabody.
After the injunction the committee set out to maximize value for the shareholders under the circumstances, as it had been enjoined to do.
On August 11th the committee wrote to both Merrill Lynch and the Edelman group that it would consider a transaction of at least $48.50 per share for the shareholders, that both contenders' last bids had been within that range, and that they should each, accordingly, submit their best and final offers, with full supporting documentation, no later than August 18th.
On August 18th the Edelman group offered a two step transaction by which it would first make a tender offer for 51% of Fruehauf's common stock (or approximately 10.9 million shares) at $49.50 per share. At a second step merger, the remaining shares would be exchanged for $51.00 or equivalent securities. A liquidation of substantial corporate assets would be made to raise the funds necessary for the second step.
The Merrill Lynch response of August 18th was that its previous offer of June 27th was its best and final offer. That offer had been a first step tender offer for 77% (or approximately 17.5 million shares) of Fruehauf's common stock at $48.50. The second step would be $48.50 cash or equivalent securities, as valued by Fruehauf's investment banker.
Upon receipt of those two "best and final" offers, the special committee was presented with a dilemma. The financial advisors (Kidder Peabody was now joined by the newly retained Salomon Brothers) pointed out to the committee the positives and negatives for shareholders of both offers.
The Edelman group offered more cash, but for only 51% of the shares, at the first step. Merrill Lynch's offer was for one dollar less but for 77% at that stage. As for the second step, the Edelman offer raised concerns whether the large sales of corporate assets could or would be conducted quickly enough to provide the planned $51 shareholder value. The Edelman group would not commit to any specific schedule for either the liquidations or the redemptions proposed. Moreover, there was concern whether, when so much of the company had been sold, the remaining operations could service the debt necessary to realize $51 value at the second step.
Meanwhile, Fruehauf earnings were declining and, as time passed, Merrill Lynch raised the possibility that it might withdraw. If that were to occur, the committee's concern was that the Edelman group could have taken the company unopposed, for less than $48.50 per share, and precipitated a genuine loss for the shareholders. Time became of the essence to the committee. The advisors requested permission, and the special committee granted it, to call upon the two bidders for clarification of their plans and, if possible, to obtain a more clearly favorable bid.
The Edelman group was unwilling to go any higher or to give any further assurances. Edelman subsequently testified that the more he learned about the company, the less it was worth to him: that he not only would not raise his price but was getting cold feet on the offer already made.
Merrill Lynch was willing to increase its bid, but only on condition that a settlement be made with the Edelman group. Merrill Lynch's principal source of funds, Manufacturer's Hanover Bank, would allow no increase unless a settlement were reached. Accordingly, Merrill Lynch approached Edelman about a settlement, and found him amenable. Neither Fruehauf's Directors nor its financial advisors participated in the settlement negotiations which then ensued between the contenders, and proceeded to a resolution by August 22, 1986.
By the terms of that settlement, Merrill Lynch purchased the Edelman group's 2,131,007 shares of Fruehauf at $49.00 per share. The Edelman group was indemnified for any liabilities arising out of the transaction and, as Edelman had demanded, Merrill Lynch paid the group $21,065,000 on account of the expenses which the group had claimed it incurred in its efforts for Fruehauf. Edelman refused to document the expenses, but Merrill Lynch agreed to the payment, in order to settle the war of attrition. Both groups...
To continue reading
Request your trial
-
Katt v. Titan Acquisitions, Ltd.
...have held that Section 14d(7) and Rule 14d-10 apply only to tender offer bidders, not the target company. See Priddy v. Edelman, 679 F.Supp. 1425, 1431 (E.D.Mich.1988), affd. on other grounds, 883 F.2d 438 (6th Cir. 1989) ("the language of both the statute [Section 14(d)(7)] and the rule [R......
-
Katt v. Titan Acquisitions Ltd.
...with shareholders entered into separately from and before the tender offer do not violate the Best Price Rule. See Priddy v. Edelman, 679 F.Supp. 1425, 1431-32 (E.D.Mich.1988), affirmed on other grounds, 883 F.2d 438 (6th Cir. 1989). Other courts also have followed Lerro`s approach. See, e.......
-
In re Digital Island Securities Litigation
...upon which Claim II is based, is applicable by its terms only to a bidder, and not to a selling shareholder. See Priddy v. Edelman, 679 F.Supp. 1425, 1431 (E.D.Mich.1988), aff'd, 883 F.2d 438 (6th Cir.1989); Kramer v. Time Warner, Inc., 937 F.2d 767, 779 (2d Cir.1991) (affirming dismissal o......
-
Kearney v. Jandernoa, 1:95-CV-823.
...controlling shareholder, and held to a fiduciary standard. Maggiore v. Bradford, 310 F.2d 519, 521 (6th Cir.1962); Priddy v. Edelman, 679 F.Supp. 1425, 1430 (E.D.Mich.1988), aff'd, 883 F.2d 438 (6th Cir. 1989). See also Lewis v. Knutson, 699 F.2d 230, 235 (5th Cir.1983) (imposing a fiduciar......