Lin Can’t Resist: Board Agrees to New McCaw Bid : Communications: Directors vote to sell control for $3.4 billion after rival suitor BellSouth fails to raise its offer.
After nearly six months of struggling, directors of Lin Broadcasting on Monday abruptly voted to sell a controlling stake to McCaw Cellular Communications for $3.4 billion.
The vote, coming after McCaw again raised its offering price, drew McCaw closer to victory in a high stakes battle for control of some of the most lucrative cellular telephone properties in the world.
In light of rival BellSouth Corp.’s failure to make a counteroffer to McCaw’s bid of $154.11 a share (up from last month’s $150-a-share offer), Lin’s board suddenly dropped its resistance. The purchase of the 21.9 million shares, together with the 5.1 million Lin shares it already owns, would give McCaw majority control.
Lin’s board “was compelled to do what they did. It doesn’t mean that they suddenly prefer a merger with McCaw to BellSouth,” said Frederick Moran, president of Moran & Associates, a Greenwich, Conn., investment concern that controls shares in both Lin and McCaw.
In Atlanta, BellSouth, which had stepped in as the white knight to save New York-based Lin from the Kirkland, Wash., upstart, said it was studying McCaw’s new offer and would have no immediate comment. But many analysts said they did not expect BellSouth to raise its offer.
“I think if they wanted to continue to play this game, they would have made their wishes known by now,” said Thomas W. Friedberg, a Seattle-based analyst with Piper, Jaffray & Hopwood of Minneapolis. He and others in the industry cited BellSouth’s conservative management’s reluctance to take on a high amount of debt and dilute the company’s earnings.
The battle for Lin began in June with McCaw’s hostile $120-a-share bid for all of Lin and seesawed as Lin’s board adopted a course of determined resistance. McCaw lowered its bid to $110 a share after Lin lost a court bid to compel Metromedia Inc., its partner in New York and Philadelphia franchises, to sell out to Lin.
Lin finally turned to BellSouth, proposing that BellSouth and Lin merge their cellular telephone operations to form the nation’s largest company that would absolutely control the valuable big city markets. McCaw, currently the nation’s largest independent cellular telephone operator, pursued Lin vigorously for precisely that reason--it lacks a significant presence in the urban markets that are expected to grow the fastest.
As BellSouth showed a determination to go further with Lin, McCaw opted to dramatically increase its offer to $125 a share--but for a majority stake for which it could finance instead of the whole.
After raising the offer again without a response from Lin’s board, McCaw threatened to try to oust Lin’s board, and the battle became a war between accountants over arcane accounting interpretations that would make each side’s proposal look best.
The tide turned late Friday when McCaw submitted a new offer. Lin said it discussed the revisions with McCaw over the weekend and convened a board meeting Monday to review the offer and any other proposal.
While BellSouth Corp. was invited to submit a proposal to revise its merger plan, “BellSouth has not done so at this time,” Lin said in a statement. Lin said it asked BellSouth to withdraw its merger agreement so that it can enter into a binding agreement with McCaw. If BellSouth doesn’t withdraw, Lin could terminate the agreement if its stockholders on Jan. 12 do not approve the BellSouth proposal.
“Throughout this long process our goal has been to maximize stockholder value,” said Lin President and Chief Executive Donald A. Pels. “The board’s action in recommending the revised McCaw offer is in accordance with that goal.”
The McCaw offer was superior to the BellSouth proposal at $150 a share, Moran said. “Today’s further improvement was even better,” he explained, forcing the Lin board to accept it or face the wrath of shareholders.
In addition to raising the cash price, McCaw said it would transfer to Lin its nearly 5% interest in a Los Angeles Cellular Telephone. Lin currently owns 35% of the franchise and BellSouth holds 65%, meaning that McCaw would become partners with its rival in the important Los Angeles market if the new transaction is approved.
Under the new proposal McCaw would still cause Lin to buy $425 million of McCaw stock and distribute it to Lin holders as a dividend. McCaw also said it agreed to amendments to the part of the proposal where it would guarantee to buy remaining Lin shares at a certain value including limiting purchases to 75% of shares outstanding instead of 81%.