NEW YORK — Frederick’s of Hollywood has begun soliciting approvals from minority shareholders of a $7.75-a-share purchase offer, following a last-ditch attempt by the losing bidder to head off the deal by having the company issue additional shares.
Veritas Capital had bid $9 a share, but lost out because the winning bidder, Knightsbridge Capital Group of Chicago, had locked in control of the company before the higher Veritas bid.
During the bidding, Frederick’s of Hollywood Class A stock had run up to $10 a share. On Friday, it had pretty much settled down, easing 1/16 to 7 7/8, still above the $7.75 offer. The Class B stock, which has no vote, closed unchanged at 7 3/4, the offering price.
According to a proxy statement filed with the Securities and Exchange Commission, the Knightsbridge group gained control first by closing the purchase of 43.4 percent of Frederick’s of Hollywood Class A shares and 53.5 percent of the Class B shares from the estates of the founding family. It then went into the open market and purchased enough stock to get 50.04 percent of the Class A stock.
Meanwhile, Veritas proposed that the majority grip of the Knightsbridge group could be diluted by issuing a new class of stock and selling the new shares to Veritas. However, the board was advised that there was some question of the legality of that kind of ploy. According to the proxy statement, which provides a blow-by-blow history of the bidding, the company’s counsel had advised that “the Delaware courts had never approved such an option and had described it as a ‘radical step’ and, accordingly, that there was a substantial risk that issuing such an option was not permissible under Delaware law.”
After much bidding back and forth, the Knightsbridge offer was increased from $6.14 a share to $6.90 a share, and finally, on Sept. 6, the board accepted the Knightsbridge offer and agreed not to entertain any other bids.
On Sept. 11, the board received the $9-a-share bid from Veritas. The board decided not to respond to the offer because of the agreement with Knightsbridge and the legal problems that might arise if it issued new shares for the Veritas group.
There are a total of 9.7 million shares of Frederick’s of Hollywood outstanding, worth a total of $69.7 million at the $7.75 price.

load comments
blog comments powered by Disqus