Anyway, Outdoor filed the proxy for their buyout last night. I’ve been eagerly awaiting it for any information on how Intermedia responded to KES’s offer and any additional goodies.
And let me say I wasn’t disappointed.
First, we had these goodies on p. 41
- If the transaction fails to close, there is no limit to the damages OUTD can seek from KSE
- Outdoor is permitted to furnish confidential information and conduct negotiations in the event it could lead to a superior bid
I think these two items further solidify my core thesis: this is a bid that is designed to be topped, and there is zero chance this bid falls through.
But the most interesting part to me was found on p. 38.
On March 12, 2013, InterMedia Partners delivered to the Outdoor Channel Board a revised binding, irrevocable offer to modify the terms of the InterMedia merger agreement, and proposed a per share consideration payable to the Outdoor Channel stockholders (assuming an election of mixed consideration) of $4.46 in cash and 0.490 of a share of the common stock of the combined company plus a share of redeemable preferred stock of the combined company, which we refer to herein as the Special Preferred Stock. The Special Preferred Stock had a stated face value of $0.50 per share, a coupon of 8% per annum payable only upon declaration by the board of directors of the combined company, compounded annually to the extent such coupon was not paid, and would be redeemable at any time at the company’s option, but in any event no later than 5.5 years following its issue date. The revised proposal provided for a cash election mechanism, under which all holders would receive a share of Special Preferred Stock and holders could elect to receive cash in the amount of $8.75 per share (up to an aggregate of $115 million), one share of the common stock of the combined company (up to an aggregate of 34.8% of the outstanding shares of the combined company), in each case subject to proration, or a mix of both stock and cash. Similar to InterMedia’s initial proposal, InterMedia’s revised proposal did not propose other substantive changes to the terms of the InterMedia merger agreement.
It looks like Intermedia came back with an offer of $8.75 per share in cash and stock plus a preferred share of $0.50. OUTD rejected this because the uncertainty of the stock consideration and the fact they felt the illiquidity of the preferred shares greatly decreased there value.
We also already know the Intermedia feels that the shares of their combined companies would be very valuable due to the huge synergies between the two companies
So Intermedia came back with a package with a headline value of $9.25. Outdoor felt that the package was worth less than $8.75 cash due to uncertainty and illiquidity vs straight cash. Intermedia feels that the package was worth more than $9.25 because the equity component was likely undervalued.
There’s a very simple solution to this equation: Intermedia needs to come back with a package consisting of more cash. Outdoor clearly valeus that at more than equity, Intermedia clearly values the equity more than cash. If Intermedia is right, increasing the cash component is a steal for them: it allows them to buy an undervalued asset with leverage and keep all of the value for themselves.
I’ve only had a chance to briefly thumb throw the doc so far, but overall, the document only further reinforces my feeling that this bid was specifically designed to be topped. The whole document / merger agreement seems completely in favor of OUTD- it gives them all the rights to pursue a superior bid, and places all of the burdens on KSE to guarantee the merger goes through.
Disclosure: Long OUTD
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