US Facilities Corp.'s directors Tuesday roundly rejected a $79-million hostile takeover bid as a “bargain” sale and took steps to make it harder for the unwanted suitor to play havoc with the company’s annual meeting next week.
They voted unanimously to recommend that shareholders turn down demands by Fidelity National Financial Inc. to put the Costa Mesa insurance holding company up for sale immediately and to elect two Fidelity nominees as directors.
But they left the door open to a possible merger with Irvine-based Fidelity, the nation’s fifth-largest title insurer, or other potential buyers on more “favorable terms” than Fidelity’s offer of $15 a share.
Fidelity’s resolutions will be presented to shareholders at US Facilities’ annual meeting May 25.
“The conclusiveness and unanimity of the board’s decision sends a strong message to our stockholders of its support for management and its business strategies,” George Kadonada, US Facilities’ chairman and chief executive, said in a prepared statement.
The message to Fidelity and its chairman, William P. Foley II, also is clear, Kadonada said. “We are not opposed to a sale of the company if an opportunity truly exists on favorable terms.”
In a letter to shareholders, Kadonada said that the sale of the company “at this time would risk substantial damage to US Facilities’ business and prospects.” He urged shareholders to vote against Fidelity’s two director nominees because the pair “will give Fidelity National a ‘pipeline’ to confidential corporate information, will be disruptive and, in our judgment, will create risk for your investment.”
In a meeting that lasted into the night Monday, US Facilities’ directors also approved a bylaws change that lowers the quorum needed to conduct the annual meeting from half the shares outstanding to a third.
That change effectively blocks Fidelity’s effort to gather enough shareholder votes to allow it to boycott the meeting and force a postponement for lack of a quorum. Fidelity had threatened to follow that strategy but abandoned it after top management said last week that it would ask directors to allow a shareholder vote on Fidelity’s proposals.
Because US Facilities isn’t sure if Fidelity’s offer is bona fide and isn’t clear about the details, it has asked its Wall Street investment banker, Morgan Stanley & Co., to meet with Fidelity officials to see if Fidelity can come up with “a firm cash offer at an attractive price” that US Facilities could consider seriously.
“It’s encouraging that Morgan Stanley could talk to us,” Foley said in an interview Tuesday, noting that Morgan Stanley has not called the offer inadequate.
Both sides said Tuesday that initial telephone calls between Morgan Stanley and Fidelity’s investment banker, Merrill Lynch & Co., led to a stalemate so far. Foley asserts that Morgan Stanley wasn’t given authority to enter into merger negotiations and that Kadonada should show good faith by delaying the annual meeting for a month so the two sides can negotiate.
Kadonada refuses to do that, saying shareholders now will decide whether the company should even be put on the block.
The pending offer, Kadonada said, doesn’t take into account the “potential value of the company’s business operations and prospects” and instead risks “substantial damage” to its business.
Kadonada has insisted on following a slow and cautious course in evaluating Fidelity’s offer, disputing Foley’s allegation that he has been stalling in an effort to torpedo Fidelity’s offer.
After initial interest, Wall Street seems to be adopting a wait-and-see view.
Fidelity began accumulating its 9.6% stake in US Facilities on March 21, causing the price of the target’s stock to rise quickly from $9 a share to $13.75 on the Nasdaq market. Since that early surge, though, the stock has traded a bit lower, closing Tuesday at $13.875 a share, up 12.5 cents from the previous day.
“There will be a big disappointment to shareholders if US Facilities defeats our resolutions,” Foley said. “This stock will go nowhere except back down.”
Fidelity’s stock, meantime, hasn’t suffered too much, falling gradually from $18.50 to $17.25 over the first month. It closed Tuesday at $17.625 a share, up 25 cents, on the New York Stock Exchange.