transaction. Often such a transaction is
proposed by a prospective investor not
otherwise affiliated with the company.
Helms was able to avoid certain voting
restrictions under Florida law in spite
of this being an affiliated transaction,
because its affiliated shareholders had
been the beneficial owners of at least 80
percent of the company’s outstanding
voting shares for more than five years.
Regardless of whether yours is an
affiliated or unaffiliated transaction, the
value you assign to the shares is crucial.
The primary concern of regulators (and
potentially the courts) is that the transaction be fair to the shareholders being
“squeezed out.” Assure fairness by
gaining the a pproval of a committee of
independent directors and a favorable
shareholder vote.
NEIL BRENNAN
Before undertaking a going-private
transaction, the board of directors
should obtain an independent valuation
analysis from an investment banker or
appraiser to assure the fairness of the
transaction and the compensation being
paid to the shareholders. Because this
independent analysis must pass SEC
scrutiny, give careful consideration to
the qualifications of the person or com-
pany providing such analysis and the
formal fairness opinion. That opinion
letter and all supporting financial data
must be submitted to the SEC for review
and included as an exhibit to the materi-
als sent to the shareholders. Ultimately,
the price paid to Helms shareholders
holding fewer than 2,000 shares was
primarily based on this opinion.
By Melissa Melzer Y laz schneider [ ]
business day after the transaction showing changes in that person’s share holdings as a result of the reverse split and
redemption of fractional shares.
This SEC filing established that
Helms no longer has reporting obligations under federal securities laws.
Thus, although the company will continue to have audited financial statements for business reasons, it will not
have to file quarterly and annual financials with the SEC, nor the myriad of
other documents required by SEC and
Sarbanes-Oxley regulations, all requiring management time and outside
attorneys and accountants. The cost of
the Helms transaction, including the
redemption of shares, of course, was not
insignificant. However, the net effect on
the next year’s earnings per share, considering both the decreased expenses
and the reduced number of shares outstanding, is expected to be significant,
and far outweigh the costs, especially
on a going-forward basis.
Of course, if there were dissenting
shareholders who demanded appraisal
rights, those issues would have to be
resolved after becoming private, either
by settlement or litigation. Fortunately
for Helms’s management, only four out
of 1,294 total shareholders exercised
appraisal rights and objected to the value
paid for fractional shares. Those objections, however, did not result in either litigation or significant additional expense.
As counsel, you may need to advise
a client on the pros and cons of staying
private versus going public. By attending carefully to the regulatory requirements and other factors discussed
above, you can position yourself to
give the best advice to clients making
this crucial decision.
Melissa Melzer is an associate in the Boca Raton,
Florida, office of Berger Singerman. Coauthor Laz
Schneider is a partner in the firm’s Fort Lauderdale
office. Both worked on the Helms going-private
transaction discussed in this article.
