Seven members of Topps’ Board of Directors were the target of a letter from one of the three board members who oppose the pending sale of the company. He’s miffed Topps management didn’t pursue a possible deal with a bidder believed to be Upper Deck and has a few other things to get off his chest.
Meanwhile, Wall Street seems suddenly bullish on Topps. Hmmm……
Topps fought off a possible takeover bid by three unhappy shareholders last year when it invited them to sit on the company’s Board of Directors. Timothy Brog, Arnaud Ajdler and John Jones, who head Crescendo Partners, were subsequently left out of the discussions that led to Topps’ merger agreement with Michael Eisner’s Tornante Company and buyout firm Madison Dearborn Partners. The $385 million deal pressed onward after it was revealed this week that a company identified only as "Bidder C", was rejected in a late bid to buy Topps. That company is believed to be Upper Deck.
Ajdler, on behalf of Crescendo, filed a letter with the Securities and Exchange Commission Thursday, telling the Board’s majority members again he believes the $9.75 per share deal with Eisner’s group undervalues Topps.
In the letter, Ajdler criticized Topps management for accepting a buyout at $9.75 a share when it recommended in 2006 the company buy back its shares for a top price of $10.62 a share.
"If the proposed merger is consummated, Madison Dearborn and Tornante stand to reap the benefits of the company’s initial strategic turnaround results, as opposed to the long-term stockholders who have waited patiently through years of poor operating and stock performance under the current management team," Ajdler wrote.
Topps disagreed. "We believe the proxy demonstrates in great detail that the board’s process and deliberations were consistent with our objective of maximizing stockholder value," Topps said in a statement published by Reuters News.
In the letter Ajdler says the mystery bidder (Upper Deck?) has plenty of money to complete a deal and have it approved by government regulators.
Topps’ stock was trading at over $10 per share on Thursday, which some analysts believe means a better deal could be forthcoming or that Eisner’s group could raise their bid to stave off any challenges.
Here’s the full text of the letter:
Board of Directors of The Topps Company, Inc.
c/o Mr. Steven Gartner
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
Dear Fellow Members of the Board:
I have reviewed the preliminary proxy statement (the "Merger Proxy") filed
by The Topps Company, Inc. ("Topps" or the "Company") on April 17, 2007. The
fact that the Topps Board did not solicit comments from Timothy Brog, John Jones
or me (the "Objecting Directors") or even make available to us drafts of the
Merger Proxy before filing it with the SEC is unjustifiable and is another
example of the Topps Board’s disregard for its stockholders’ representatives and
basic corporate governance.
As a fiduciary, it is therefore my duty to set forth for the stockholders
the omitted part of the story, which certain other members of the Topps Board
apparently do not want the Company’s stockholders to know.
Set forth below are just a few of the many "half-truths" that you have
presented in the Merger Proxy:
o THE HALF-TRUTH REGARDING BIDDER C: You do not make clear that at the April 16, 2007 Board meeting, I was the director who voted in favor of declaring
Bidder C an "excluded party," a determination required by the Board under the
Merger Agreement in order for the Board to continue negotiations and
discussions with a bidder following the end of the "go-shop" period. You also
fail to mention in the Merger Proxy that I favored a declaration of Bidder C
as an "excluded party" for the following reasons: (1) the proposed purchase
price was $1 more per share, (2) the proposal was not contingent on
financing, (3) the amount of liquidity in the financial system is at an
unprecedented level and it would be highly unlikely that Bidder C would not
get financing for this transaction, (4) Bidder C made concessions regarding
the deal terms, (5) this deal would be highly strategic for Bidder C and (6)
there would be potential of creating deal tension between the bidders to
maximize stockholder value.
o THE HALF-TRUTH REGARDING THE RECOMMENDATION OF STRATEGIC ALTERNATIVES: You have made several incomplete statements in the Merger Proxy regarding the Objecting Directors’ analysis and recommendations regarding strategic alternatives to maximize stockholder value. First, you mischaracterized the Objecting Directors’ recommendation of a special dividend over a large share
buyback at a meeting of the Topps Board. You state in the Merger Proxy that
the Objecting Directors "unanimously recommended the payment of a special
dividend because, among other things, in the second committee’s view, `Topps’
stock price is not materially undervalued to its intrinsic value,’ and `the stock is not particularly cheap.’" What you conveniently fail to mention, however, is that the Objecting Directors expressly stated that their valuation considerations assumed the continued employment of certain members of senior management. If you had provided the complete story, the quote of the Objecting Directors in the Merger Proxy would have read something like: "With existing senior management in place, the stock is not particularly cheap and we therefore recommend the payment of a special dividend; however, were certain members of senior management to be replaced, the stock would be significantly undervalued and we would advocate a large share buyback." You fail to mention that on several occasions I recommended a large share buyback instead of a special dividend were the Company to replace certain members of senior management.
You also conveniently fail to disclose that the most recent stock repurchase
program that was approved by the Board – prior to the election of Mr. Brog,
Mr. Jones and me – had a top price of $10.62 per share. I do not understand
how management and the Topps Board on the one hand can recommend buying
shares up to $10.62 per share, but on the other hand approve the sale of the
Company at $9.75 per share as the alternative that maximizes stockholder
value, particularly given the improvements in the Company’s financial
performance in the first three quarters of fiscal year 2007.
o THE HALF-TRUTH REGARDING MANAGEMENT’S "ADJUSTED CASE" PROJECTIONS: You conveniently fail to mention in the Merger Proxy that the "adjusted case" projections prepared by management and used by Lehman Brothers in its fairness analysis appeared for the first time only on January 25, 2007, after the $9.75 price had been determined. Before that time, the Topps Board had seen and worked only with the "management" projections. Without the "adjusted case" projections which significantly reduced the "management" projections previously provided to the Topps Board, the Proposed Merger would clearly not be within the range of fairness of the discounted cash flow analysis.
If the Proposed Merger is consummated, Madison Dearborn and Tornante will
stand to reap the benefits of the Company’s initial strategic turnaround
results, as opposed to the long-term stockholders who have waited patiently
through years of poor operating and stock performance under the current
management team for the underlying value of their shares to be unlocked.
o THE HALF-TRUTH REGARDING THE COMPANY’S SALE PROCESS: In the days following the announcement of the Proposed Merger, a Company spokeswoman made comments to the press suggesting that the Company had been actively soliciting bids for the sale of the Company for the past two years. The Company spokeswoman was quoted in a news article as stating the following:
"Over the past two years, with the assistance of Lehman Brothers Inc., we
have examined all opportunities to deliver value to Topps stockholders,
and no other superior proposals have emerged in this time frame."
I reiterate my belief expressed in my March 14 letter to the Board that this
statement is incomplete because it gives the incorrect impression that Topps
was shopped or that alternative proposals were solicited before entering into
a merger agreement at $9.75. The Merger Proxy indicates that the Company only
talked to 3 financial buyers (Bidder A, Bidder B, and Tornante) before
entering into a deal with Tornante. The Merger Proxy also makes it clear that
Topps never approached Bidder C, its main competitor for its entertainment
division, to see if it had an interest in buying the Company. The Merger
Proxy also does not mention that Bidder C had expressed interest in pursuing
a transaction with Topps even before the announcement of a transaction with
Madison Dearborn and Tornante.
o THE HALF-TRUTH REGARDING MY OPPOSITION TO THE PROPOSED MERGER: You continue to mischaracterize my opposition to the Proposed Merger. The Merger Proxy states that "Messrs. Brog and Ajdler indicated, among other things, that they opposed the transaction because there was not, in their view, a full auction of the Company." You conveniently omit that my opposition to the deal first and foremost stems from the fact that the price is inadequate. At a mere 3%
premium based on the average closing prices of the 20 trading days preceding
the signing of the Merger Agreement, this buyout is not in the best interest
of the Company’s stockholders and it does not maximize stockholder value.
I reiterate my position that the existing Proposed Merger is not in the best
interest of the Company’s stockholders because the per share merger
consideration is wholly inadequate and does not provide full and fair value to
the Company’s stockholders.
/s/ Arnaud Ajdler