Hacker News Reader

Comment by brians | Hacker News Reader

The argument is that some people were compelled to sell at this low price, and a fair price (the nearly-$18 number) is about what would have persuaded them to sell. All the high-sounding ideas about making arguments by offering to buy ignores the fact that this wasn't a market deal: small shareholders were compelled to sell whether they wanted to or not, and the board had a fiduciary interest to them.

View on HN

There's plenty of bad decisions that a majority of shareholders can make, that a minority of the shareholders would be against, and which would decrease the value of the shares. But the whole points of shares in the first place is that one share is one vote, and if you want a larger say in the running of the company, you have to put up they money.

One risk when investing in a public company is every other shareholder, and in this case a majority of the shareholders voted to agree to the buyout price. Tough cookie for the minority holders who opposed it, but why shouldn't they bend to the will of the majority? Why should they be rewarded after the fact?

The precedence seems terrible to me, because as a shareholder in a future case like this, it is clearly beneficial to accept whatever buyout offer is on the table, and the immediately class-action sue the buyer for the difference between that and some fictional "fair" price. What happens if every shareholder does this?

If every shareholder does it, the deal doesn't go through in the first place. The court requires a shareholder to have voted against the deal in order to be a party to the lawsuit.

That seems like it sets up a perverse incentive structure, where shareholders should always vote against deals as long as the downside from the chance that their vote causes the deal not to go through is smaller than the upside from the amount they'd expect to gain from the lawsuit.

It's amusing that several of the issues raised in the recent security analysis of "TheDAO" raised exactly the same issue with their voting structure on Proposals. Namely, game theory showed the best move was to always vote No so long as the No vote wasn't the deciding factor in killing the proposal.

Yes. Many buyouts are immediately followed by a boilerplate class-action lawsuit that the terms were unfair. It's effectively protection-money, as the law firms who specialize in these actions settle in a predictable way, and class action means no shareholder can file a separate lawsuit in re the merger terms.

And this is the comment that makes the whole thing make sense, sort of, to me.

But then if judge's logic becomes the standard, then doesn't that mean you should always vote against the the deal if you think most people will vote for it?

But all shareholders should have factored in the risk of this situation arising when they purchased the shares, should they not have? The risk of a future buyout-by-vote was always present. This scenario, I assume, was covered in the shareholder agreement?

Yes, but the the situation they agreed to was not "majority shareholders can force them to sell for whatever they want. Period." It was that they can be forced to sell, and then they can go to court and say that the price they got was not a fair appraisal of the value of the stock. Now they're arguing that $13.75 was not a fair appraisal of the value of the stock.

And that shareholder agreement doesn't say that after the buyout occurs, those who no longer own the shares are entitled to fantasy money.

It sounds like they don't have to factor in the risk of others not doing their fiduciary duty, because the courts will enforce it.

Okay, yeah, dctoedt points to the law[1] where this is described. I did not know about this law.

Interesting, though, that the courts' appraisals are trusted over the market in this case. It's sort of like an anti-crowd-dynamics protection, but only for people who vote no. Your decision over whether to vote no is influenced by your knowledge of likelihood for the total vote to succeed, as henrikschroder mentions[2].

[1]: https://news.ycombinator.com/item?id=11816921 [2]: https://news.ycombinator.com/item?id=11816784

Ah - that does make sense. They were looking out for shareholders who didn't have a choice who would have been happy to wait for years to realize their gains.

I think your second point above is right, though. If this reasoning applies to pretty much any LBO, it has to be factored into the price of future LBO offers.

Reply on news.ycombinator.com