What should have been a simple merger has turned into a complex fiasco with BigLaw lined up on both sides.
But it also raises important questions – was insider trading something untoward involved, or was it just astute pattern recognition? If you’re at all like us, you’ll find it amusing to compare and contrast that with Fairfield Greenwich Group’s spectacular ineptitude at due diligence.
Or, perhaps it’s just sour grapes from a losing bidder now forced to compete with the former apple of its eye.
Details and the lawyers involved after the jump.
Applica is a small appliance company (it markets products under the Black & Decker brand) that sought to remain competitive by merging with Nacco in 2005. It seems Applica wasn’t too committed, though, because shortly after, Nacco discovers that Applica has been shopping itself around and has found a new buyer: the hedge fund Harbinger Capital partners. Applica breaks the agreement and pays a $4 million termination fee to Nacco, which decides not to go away quietly. Applica continued talks with Harbinger and in December 2007, the merger was completed with Harbinger owning 92% of the new entity of Hamilton Beach, Inc.
Nacco is claiming more than just the usual litany of loser complaints (i.e., tortious interference, etc.) – although they’ve got those too.
With the help of Jones Day’s Philip Le B. (what’s that short for?) Douglas (Princeton AB ‘72, NYU JD ‘75) and Mark Seiden (Bucknell BA ‘88, Cardozo JD ‘92), NACCO has accused Applica and Harbinger of everything from breach of contract to civil conspiracy.
But here’s the really interesting part: Nacco is also accusing Applica management of tipping Harbinger consultant David Maura in violation of the terms of a non-disclosure agreement. That information allowed Harbinger to build up a stake at a lower cost and ultimately undermine the Nacco bid. [Ed 1/13/10 @12:11: Insider trading per se is never mentioned in Chancellor Laster's opinion - he merely states that Harbinger had excellent information and that he had to assume Nacco's allegations that the information was improperly obtained were true due to the posture of the case at the time (motion for summary judgment)]
Nacco claims that over time Harbinger used nonpublic information to help formulate its strategy and accumulate its Applica stake at inexpensive prices.
Nacco has failed before in litigation over the matter, including a 2006 federal suit in Ohio that Nacco dropped after a judge ruled that the company was unlikely to prevail in a claim that Harbinger misled the market about its own takeover intentions. The emails surfaced publicly in the Dec. 22 ruling in the Delaware case. Many documents are under seal or publicly redacted.
An attorney for Nacco said the company had no comment. Terry Polistina, who was Applica’s chief financial officer at the time of the deal and is now chief executive of the merged company controlled by Harbinger, Russell Hobbs Inc., said in a written statement that he “had responsibility for the Nacco and Harbinger transactions,” adding, “we never gave Harbinger or any one else outside the company confidential information.”
And Chancellor Laster thinks there might be something to that. He’s allowing the suit to go forward.
Harbinger is calling on Paul Weiss, famous for its fighting with Wachtell, partner Leslie Fagen (Yale BA ‘71, Columbia JD ‘74), who has some free time after her work on the MBIA biglaw feast. Other partners include Bruce Birenboim (Harvard BA ’77, JD ’82) and Joyce Huang (Yale BA ’91, Harvard JD ’94).
Applica has turned to Greenberg Traurig’s Kelly Terribile (Le Moyne College BA ’91, Cornell JD ’96), in Delaware, and Miami shareholders Holly Skolnick (Wisconsin BA ’76, Harvard JD ’80) and Eliot Pedrosa (Florida International BA ’95, Harvard JD ’99).
They’re claiming Harbinger is just really, really good at investigating its potential investments.
On Friday, July 21, “Maura’s information again proved to be excellent,” the judge wrote. The consultant told Harbinger that Applica “has a deal” that would be announced shortly, the judge’s opinion said, citing communications between Mr. Maura and the hedge fund. Applica’s board approved the deal that day, in which it would be merged into Nacco’s spun-off Hamilton Beach unit in an all-stock deal.
It was announced before the market opened the next trading day, July 24, and the market initially valued the all-stock deal around $4 per Applica share, up from $2 in February when Applica said it was considering selling itself. The stock rose steadily in the weeks following both announcements.
In its statement, Harbinger said Mr. Maura’s July 21 email was based on what he heard in the market, and in any case was sent at 7:13 p.m., long after the market closed—leaving no time before the deal announcement for trading on the information.
Stick around, this will get interesting.
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