Topps Removes Dissident Directors from Search for Better Offer

Mar.14.07 | About: Topps Co. (TOPP)

Yesterday's developments in the Topps (TOPP) buyout: the board blocked dissident directors Arnaud Ajdler and Timothy Brog from monitoring the company's "go shop" process which allows Topps to solicit better bids for forty days.

Here are excerpts from the 8-K:

At the March 5, 2007 Board meeting at which the Merger Agreement was approved, the Board concluded that the presently constituted Ad Hoc Committee, which consists of Messrs. Ajdler, Brog, Feder and Greenberg, would be charged with the responsibility of monitoring Topps' progress with the go-shop process, and would report developments from time to time to the full Board. The Board made this judgment notwithstanding the fact that Messrs. Ajdler and Brog voted against the Merger Agreement because the Board understood that their primary objection to the Merger Agreement was that, in their view, an inadequate process had been conducted to permit the Board to enter into the Merger Agreement (a view with which the other directors strongly disagree).On this basis, the Board believed that Messrs. Ajdler and Brog, together with Messrs. Feder and Greenberg, could adequately represent the best interests of Topps' stockholders during the go-shop process.

On March 6, 2007, Mr. Ajdler delivered a letter to the Board in which he registered his opposition to the Merger Agreement, alleging that the process that led to the Merger Agreement was flawed because the Board "did not shop the company." He also stated that he intends to "actively solicit votes and campaign against the transaction." Mr. Ajdler was widely quoted to this effect in various news publications, including The Wall Street Journal and The Daily Deal. Mr. Brog also made public statements to the effect that he opposed the Merger. In an article that appeared in The Daily Deal on Friday, March 9, 2007 (which was subsequently filed by Mr. Ajdler with the Securities and Exchange Commission), Mr. Ajdler stated: "At this point, we want to kill the deal, take the company over, improve the margins and create value, and then possibly sell the company." He also indicated that if stockholders reject the Merger, he intends to nominate additional candidates to the Board in an effort to gain a majority.

Given the publicly stated opposition to the Merger Agreement of Messrs. Ajdler and Brog, including Mr. Ajdler's stated intention to acquire control of the Board without buying the Company, the Board met on Tuesday, March 13, to reconsider whether Messrs. Ajdler and Brog could adequately represent the best interests of the Company's stockholders. At the meeting, the Board appointed Messrs. Feder and Greenberg to monitor day-to-day developments during the go-shop period and made clear that the Ad Hoc Committee no longer has such authority. In addition, the Board created an Executive Committee consisting of Messrs. Feder, Greenberg, Mauer, Nusbaum and Shorin. The Executive Committee has been vested with the full power of the Board to the extent permitted by the Delaware General Corporation Law, except that any decision as to whether a bona fide proposal constitutes a "Superior Proposal" within the meaning of the Merger Agreement will be made by the Board.

I have to say I think the only statement in here that adequately represents the best interests of the company's stockholders is this one:

At this point, we want to kill the deal, take the company over, improve the margins and create value, and then possibly sell the company.

If there's one board member who can't represent the best interests of shareholders it's Mr. Shorin. Naming him to this new executive committee is an insult that isn't even necessary to achieve the desired result. At this point, the board isn't even bothering to provide the illusion of a velvet glove.

I've been responding to emails from Topps shareholders for days. So far, none of them have faith in Mr. Shorin. I don't either.

Among this five man executive committee, Mr. Mauer has had the shortest stay on the board – he joined in 1996. Excluding Mr. Shorin, the members of the committee have served an average of more than 13 years on Topps' board.

Look at their record over the last 13 years. Look at how they managed the business and the cash it threw off.

I won't say I have doubts about their ability to represent the best interests of the company's stockholders, because I don't. These men have already proven their inability beyond a reasonable doubt.