Thursday , March 28, 2024

Court’s Critique Sparks NetSpend To Mull New Offers As Alternatives to TSYS Bid

Prepaid card program manager NetSpend Holdings Inc. on Wednesday said it will postpone until June 18 the shareholder meeting it planned for Friday to approve its $1.4 billion sale to processor Total System Services Inc. (TSYS). The delay is an attempt in the wake of two shareholder lawsuits to create the possibility for unsolicited new offers for NetSpend. The move comes after a Delaware court said the sales process leading to TSYS’s all-cash bid “was not designed to produce the best price for stockholders.”

Austin, Texas-based NetSpend also announced proposed modifications to the terms of its merger agreement with TSYS. One would reduce NetSpend’s payout to TSYS should the deal not go through to $44 million from the original $52.6 million. Other terms would reduce the time TSYS has to match a superior proposal from five business days to three and change some of the conditions that would trigger payout of the termination fee.

A NetSpend spokesperson did not respond to Digital Transactions News requests for comment. A spokesperson for Columbus, Ga.-based TSYS declined comment.

The action is the result of a class-action lawsuit filed in Delaware Chancery Court by a NetSpend shareholder, Brenda Koehler, against  NetSpend, its board of directors, and TSYS, and a similar one filed in a Texas state court in Austin. Koehler alleged the defendants breached their fiduciary duties by not doing enough to realize the full value of shareholders’ ownership interests, even though TSYS’s offer of $16 per share represented a 30% premium over NetSpend’s stock price just before the deal was announced on Feb. 19. Koehler asked the Chancery Court, which handles commercial cases, to enjoin NetSpend from holding a shareholder vote approving the deal.

In a May 21 memorandum opinion, the judicial officer handling the case, vice chancellor Sam Glasscock III, refused to block the shareholder vote. Glasscock said approval of such an order “presents a possibility that the stockholders will lose their chance to receive a substantial premium over market for their shares from Total System Services,” and he noted that no other potential bidders for NetSpend had yet appeared.

Glasscock, however, said Koehler made some good points. “The plaintiff has demonstrated that a reasonable likelihood exists that the sales process undertaken by the NetSpend board … was not designed to produce the best price for the stockholders,” he wrote.

Glasscock specifically cited NetSpend’s lack of a pre-agreement market canvass, the board’s negotiation with only a single potential purchaser, its reliance on what he called a “weak” fairness opinion, and other faulty processes.

NetSpend issued a statement on May 22 saying it “believes that its board of directors acted appropriately and pursued a process intended to achieve the best price for the company and intends to continue to vigorously defend itself in the litigation.” The company also said it would go on with its shareholder meeting to vote on the deal, a meeting that had been postponed to May 31 from the originally scheduled May 22 date to give shareholders time to digest new information in an updated proxy.

In Wednesday’s announcement NetSpend indicated that the plaintiffs will settle the two lawsuits if the new terms, which are spelled out in a memorandum of understanding between NetSpend and TSYS, get approval from the Delaware Chancery Court. The merger agreement authorizes NetSpend’s board to furnish information to and negotiate with any third party that the board believes could make a better offer.

NetSpend tried unsuccessfully to sell itself several times before becoming a publicly traded company in October 2010, according to Glasscock’s memorandum opinion. One suitor was credit card issuer Capital One Financial Corp., which proposed to buy the company in 2007 for $700 million. The federal Office of the Comptroller of the Currency blocked the deal.

The June 18 meeting will be held in Austin.

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