Is this legal???

[gismo]

From an announcement by MAG (no not that MAG, it's the Mooney Aerospace Group):

"As a result of the merger, all outstanding shares of Mooney Aerospace common stock not held by MAG will be cancelled and converted into the right to receive a payment of $0.35 per share, subject to such common stockholders’ appraisal rights under Delaware law."

I'm familiar with buyback plans where a corporation purchases some or all of it's stock on the open market, but can a corporation simply declare that they will pay a (small?) fixed amount for any outstanding stock? Or is this part of some bankruptcy settlement? Maybe the "common stockholders’ appraisal rights under Delaware law" provides for a fair value to be assigned? Is $0.35/share a worthy offer for the stock?

If this is legal, it seems like one could organize a leveraged buyout of a company, reclaim the stock for a few pennies on the dollar and then liquidate the company for a huge windfall.

 

[Michael]

If this is legal, it seems like one could organize a leveraged buyout of a company, reclaim the stock for a few pennies on the dollar and then liquidate the company for a huge windfall.

How can you reclaim the stock if they are cancelling it?

 

[wsuffa]

They can. They make an offer for tender of the shares of common stock at some premium to the trading price (usually >15%). If a majority (or more, depending on the articles of incorporation and state law) of shareholders agree, then the company can be take private in this manner.

This will usually be accompanied by a fairness opinion. If the payout is not fair, there is always the route of shareholder lawsuits for more $$$.

I don't know the history, but it appears that Mooney is merging the public sub into the private company. In that case, shareholders of both companies need to approve. If there is one large, majority shareholder, the question of approval is moot.

 

[Dave Siciliano]

Lance:
As Bill said, there has to be a manner in which to retire all the outstanding shares of a public company. Different states allow different things. You can't have just a few shareholders prevent going private or retiring the public stock for other reasons: people don't respond, forget they have stock; lose it; die, sometimes it's too thinly traded to meet exchange requirements, etc. So, there has to be a mechanism to allow the majority to proceed if there are some shares not tendered. It would be interesting to see how many shares have not been tendered. Sure doesn't sound as if a share has much value. I'm sure there were notices given, public announcements and, as Bill said, establishment of value (a fairness opinion).

Best,

Dave

 

[JustinPinnix]

I think so. I had $5K worth of stock from a software company get cancelled a few years back.

 

[SCCutler]

I think so. I had $5K worth of stock from a software company get cancelled a few years back.

That is, in general, a violation of state law. In most states (Texas is one such), if the owner of goods is "lost" (this would include bank accounts, safe deposit box contents, shares of stock, dividends, etc.), they are not re-absorbed into the granting / paying company, but rather, pass to the state under "escheat" laws, and can usually be reclaimed from the state as well.

Example of Texas' fairly-efficient method for reporting what unclaimed property the state has taken possession of, and how to reclaim it:

http://www.window.state.tx.us/up/

 

[ScottM]

Illinois has the same thing. I even found my name on there and got back some cash from a banj account I had forgotten about.

 

[Joe B]

Lance,

I went and looked up the press release. It turns out that 90% of the Mooney Aerospace stock is already privately held by MAG. I think the shareholders are going to approve this deal! "subject to such common stockholders’ appraisal rights under Delaware law" means the minority holders at least have some rights and will get some cash out of the deal. Probably a better position than they were in before with their money in the thing and completely powerless.

Regards,
Joe