Outerwall Inc (NASDAQ:OUTR) has agreed to sell itself to Apollo Global Management for $52 a share. But some shareholder rights attorneys have launched investigations into the board of Outerwall for a possible violation of fiduciary duty. The attorneys at Brodsky & Smith, LLC specifically pointed out that their investigation is concerned with whether Apollo is underpaying for Outerwall.
The $52 per share buyout price that Outerwall and Apollo have agreed to is an 11% premium over the closing price of Outerwall shares on Friday, the last trading day before the deal was made public.
But law firm Brodsky & Smith pointed out in a press release announcing the investigation of the board of Outerwall that the company’s shares recently traded at a far higher price than what Apollo is paying for them in the buyout deal. For example, the law firm said that on July 22, 2015, nearly a year ago, shares of Outerwall changed hands at $84.45. As recent as November 18, 2015, shares changed hands at $66.02 apiece. As if that is not enough, the law firm said that an analyst current has a price target of $58 per share of Outerwall.
It should be noted that the free market price is the free market price, and Outerwall’s value has legitimately declined since then, as indication of past performance is no guarantee of future performance. Otherwise, Yahoo! Inc. (NASDAQ:YHOO) would be trading for $125 a share.
Because the board has the responsibility to negotiate for the maximum value possible on behalf of shareholders, Brodsky & Smith wants to know why the board accepted the inferior $52 per share in the buyout arrangement with Apollo.
It appears to shareholder rights attorneys at Brodsky & Smith that selling Outerwall at $52 a share damages value for long-term shareholders who recently saw their shares trade at a far higher price that what Apollo is offering them. The firm may have a point, as shareholders do not have a direct say in these types of takeoever and must rely on executive judgement.
What can shareholders do?
Brodsky & Smith has encouraged shareholders of Outerwall to contact it to discuss their rights and legal impact of the investigation. Usually, a violation of fiduciary duty can trigger a class-action lawsuit that may result in compensation for the litigants.
The value of the transaction
The $52 per share that Apollo is paying for Outerwall values the company at $895 million. But if you the assumption of debt is included, the enterprise value of the deal rises to $1.6 billion.