LARCHMONT, N.Y. (HedgeWorld)–Santa Monica Partners LP announced its opposition to a Michigan manufacturing company’s plans for a Dutch auction to repurchase up to 50,000 shares of its common stock.
Robert Westfall founded Adrian Steel Company Inc, Adrian, Mich., in 1953. His son, Harley, took over after the founder’s death in 1980. The Westfall family owns 59.86% of the shares.
That percentage will increase to 84% if public shareholders tender their shares in the quantity desired. The offering document invites tenders at any price up to US$400 but not less than US$330. Over the last year the stock, listed only on the pink sheets, has traded thinly and at between US$310 and US$360 a share.
In a Nov. 15 letter to the board of directors, Lawrence J. Goldstein of Santa Monica lays out that fund’s objections to the offering document. “Obviously,” he writes, “the Westfall family wants to own more and more of the Company by buying it from shareholders who are not given the full picture and can be hoodwinked and intimidated into selling as your illegal creeping tender continues merrily along.”
Mr. Goldstein objects in particular to the observation, in the offering document, that “our management has elected to pursue the offer as a means of delivering value to shareholders because it is a potentially tax-efficient event as compared to other alternatives such as a special cash dividend.” This is inaccurate, his letter says, because there is no difference in the tax treatment of the recipient of a dividend vis-?-vis that of the capital gain on the tender of a stock in a stock purchase. Both types of income would be taxed at 15%.
Furthermore, Mr. Goldstein writes that Adrian Steel is “substantially overcapitalized and flush with at least [US$28.4] million in cash … and also [is] maintaining substantial unused lines of bank credit,” so that the payment of a US$104 a share dividend would be a preferred method of returning cash to all shareholders.
“Unless you advise us within 5 days of receipt of this letter that you will withdraw or amend the Offer … we will have to consider enforcing our rights under both the Michigan Corporation and Federal Securities Laws,” the letter concludes.
Donald DeLong, corporate counsel for Adrian Steel, said Wednesday morning [Nov. 17], “I saw the letter yesterday.” He denied the charge that the company is trying to intimidate shareholders into receiving less than fair value and said that the reasons why a Dutch auction is appropriate at this time are “expressed very clearing in the offering memorandum.” The memo relies largely on the valuation by a financial advisory firm, Stout Risius Ross Inc., Chicago.
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