Boston Acoustics First Shopped Itself to D&M in 2003, Filing Shows
Boston Acoustics (BA) began soliciting prospective buyers over 2 years before a June 8 agreement for D&M Holdings to acquire the firm for $17.50 per share cash (CED June 10 p4), BA disclosed in a preliminary proxy statement filed at the SEC in preparation for shareholders approving the deal. The firm hasn’t scheduled a shareholder vote.
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The same day BA announced the merger agreement, its board unanimously ratified the deal, relying heavily on financial adviser Boston Meridian’s recommendations calling the $17.50 offer price “fair” under current and future market conditions, the proxy said. The board considered but rejected several “countervailing” factors working against the merger, the proxy said. For example, the filing said, BA as an independent publicly traded entity will cease to exist, as will BA shares, which will be canceled once cashed in. Therefore, the filing said, shareholders “would not benefit from any future increase in our value” if the merger is completed. Boston Meridian also judged as negative D&M’s right to collect a $3 million termination fee if the merger falls through, the proxy said. It said the specter of that fee may deter potential suitors from proposing a deal that would be “more advantageous to our shareholders.”
The deal dates to Sept. 3, 2003, when BA representatives first contacted senior executives at Ripplewood Holdings to assay their interest in acquiring BA, the proxy said. Onetime Denon owner Ripplewood, which was a “controlling shareholder” in D&M, had approached BA years earlier about a possible deal, the filing said. Earlier, during summer 2003, BA had talked with a senior executive of a “mid-sized audio component manufacturer” not identified in the proxy. Ultimately, the unnamed company’s pursuit withered due to BA doubts that it had the means to complete a deal on terms favorable to BA shareholders, the proxy said.
BA and Ripplewood representatives had their first serious face-to-face talks in Las Vegas on the eve of the Jan. 2004 CES and soon thereafter began their due diligence, the filing said. A year later, again at CES, the discussions reached a more serious pitch, when D&M made a presentation to BA on “preliminary plans for integrating the business of the 2 companies should a merger or other acquisition be effected,” the filing said. On March 22, the filing said, BA met in Boston with representatives of an unidentified “industrial conglomerate” that had expressed preliminary interest in a BA acquisition but after the meeting said it wasn’t yet ready to have “substantive discussions,” the filing said. Three days later, D&M sent BA Chmn. Andy Kotsatos a letter expressed a desire to acquire the company, the filing said.
In arriving at a recommendation to the board endorsing D&M’s $17.50-per-share offer as fair, Boston Meridian analyzed BA’s 2005 financial performance, comparing it with those of 17 other firms in CE and automotive electronics, the proxy said. Using a complicated statistical methodology, the adviser set the “implied value” of BA common stock at $13.10-$16.80 per share. BA’s merger deal with D&M was compared with 15 other acquisition agreements, including Kodak’s purchase of Laser-Pacific, Pioneer’s purchase of NEC Plasma Display Corp. and the Sonic Solutions acquisition of Roxio. Using another complex formula based on the “last 12 months” of BA financial data through March 26, 2005, Boston Meridian pegged a BA share’s implied value at $13.95-$17.93, the filing said.