bloggingbuyouts

Topps's (NASDAQ: TOPP) deal to be acquired by private equity firms continues to generate angst from some of its largest shareholders. Hedge fund Crescendo Partners argued that the company's CEO, Arthur Shorin had a conflict of interest in negotiating with Upper Deck, a competitor who has made an offer for the company, because Shorin "does not want to see the company started by his father and uncles fall into the hands of a longtime rival."

Today Arnaud Ajdler, Crescendo's managing partner and a director at Topps, delivered a letter to the company's board, "in response to certain false and misleading statements included in a letter from Arthur Shorin, Topps' Chairman and CEO, to Mr. Ajdler dated May 31, 2007." Here are some of the highlights:

Finally, in your communications, you like to repeat that Crescendo wants to take over Topps without paying stockholders for their shares. Once again, you are misleading your stockholders. When a buyer wants to take a company private, as Mr. Eisner and Madison Dearborn are attempting to do, the buyer pays stockholders a premium for their shares. While this premium is typically 20 to 30%, you have approved a transaction that would pay stockholders a meager 3% premium and a significant discount to where the shares are currently trading... If the ill-advised Eisner merger is voted down, Crescendo will ask its fellow stockholders, the true owners of Topps, to replace seven of the incumbent directors on the Board with a new slate... As detailed in our proxy statement, we believe that the Company could be worth conservatively between $16 and $18 per share if managed properly.

It's hard not so side with Ajdler here, at least to some extent. The company's decision to bar him from the go-shop period after the buyout was announced was high irregular, and probably unethical. And even if the Eisner/Dearborn buyout is the best the company can do, it certainly doesn't speak well for the value-generating abilities of the company's current management. If consummated, Topps shareholders will receive $9.75 per share, well below the stock's current price of $10.29. Look at the chart below: Topps shareholders would have been better dumping their shares in 1999, rather than waiting for the buyout. Usually private equity deals create value for the shareholders being bought out, but this does not appear to be the case at Topps.