After withdrawing his private-equity-backed $6.2bn bid for Affiliated Computer Services, company founder and chairman Darwin Deason has blasted the ACS board for what he said was disregard for shareholder interests, and urged five of the directors to step down.
His plan appears to have worked, as all five board members did in fact resign, but not without accusing Deason of interfering with the buyout process and giving them no option but to resign to preserve the health of the company.
With the bid–a joint offer from Deason included Cerberus Capital Management–off the table and ACS shares far below the $62.00 offer price, there was bound to be discontent on both sides of the deal. In a letter to the board, Deason says ACS’ special committee in charge of evaluating the bid and other strategic proposals wasted time and money trying to break up his exclusivity agreement with Cerberus, But despite its attempt to open negotiations up to other potential bidders, the committee found no other bidders.
Deason also noted that shareholders were unable to vote on the Cerberus bid, a point that has been made by several of ACS institutional investors in the past few days. In his letter, addressed to directors Robert Holland III, J. Livingston Kosberg, Dennis McCuistion, Joseph O’Neill and Frank Rossi, Deason implores them to resign and offers the names of replacement candidates.
In an even more strongly worded response to Deason, however, the five directors defended their duty to look after the minority shareholders–even if it means you cannot get the deal that’s most advantageous to you personally.
They said that the exclusivity agreement prevented them from dealing with all potential buyers and therefore considering a deal that didn’t involve Cerberus. The directors added that they did evaluate the proposal and were prepared to issue a recommendation at ACS’ next board meeting, but that Deason and Cerberus wouldn’t budge on the exclusivity agreement or up the offer price to a level that could be supported, It is rumored that last year, when ACS was in buyout talks with other private groups, the price tag was closer to $8bn.
There’s plenty of other allegations as to what actually happened with the bid the past few months. But the directors do lob a few specific accusations at Deason. After finally securing a waiver to the exclusivity pact, according to the directors, Deason and ACS management worked hard to make it difficult for any other potential buyer to have access to the same information provided to Cerberus and, therefore, to proceed with a proposal that would provide ACS shareholders with greater value than your proposal
As you are well aware, the actions of your management team caused one significant potential strategic buyer to walk-away and, very recently, your management team refused even to engage with another significant potential strategic buyer–despite their interest, the letter states.
It continues: We are sure you recall the time you directed management to refuse to meet with senior executives of a large industry bidder (who had made a proposal to acquire the company for an amount greater than that included in your proposal) who had flown hours to meet with management.
We’ll probably never know if these charges are with merit, but they are potentially damaging to the company. During this whole buyout fiasco, there’s been talk that indecision over the future of the company was deterring clients from signing business with ACS. With the bid withdrawn, there was a glimmer of hope that ACS could get back to its core business operations, but this latest round of boardroom fireworks doesn’t exactly inspire confidence.
The directors say they could fire Deason and the current management team, but they acknowledge the damage such a move would have on the company. Their letter closes with their resignations, effective once new independent directors are chosen.
In day-to-day dealings, ACS reported its results for the first quarter of its fiscal 2008. For the quarter ended September 30, 2007, revenue rose 8% to $1.49bn on the quarter, including $879m in commercial sales and $614m from the public sector. Net income was up 8% to $77.9m, or $0.77 per share before special items relating to ACS’s stock options probe and the review of strategic options such as the Cerberus/Deason bid, the company said.
Analysts were expecting EPS of $0.84 on sales of $1.49bn, according to Reuters Estimates.
The company reported after the closing bell yesterday, but the boardroom drama helped send shares down 4% to close at $46.86 Thursday.