M&A

Judge: Lear CEO Must Explain Icahn Deal

A Delaware judge rules that a Lear shareholder vote to approve a takeover by Carl Icahn can go ahead, but only after the CEO explains his motives f...
Stephen TaubJune 18, 2007

A Delaware judge gave Lear Corp. the go-ahead for its planned June 27 shareholder vote on a $5.3 billion takeover offer from Carl Icahn, according to the Associated Press. However, Vice Chancellor Leo Strine handed a partial victory to shareholder Classic Fund Management, which sued to block or delay a vote on the deal.

The investor, which owns about 4 percent of the shares of the auto parts company, alleged that Lear CEO Robert E. Rossiter had critical, secret reasons for agreeing to the transaction. Strine ruled that Lear must tell its shareholders more about issues that may have motivated Rossiter when he negotiated with Icahn, according to the report.

“The Lear stockholders are entitled to know that the CEO harbored material economic motivations that differed from their own that could have influenced his negotiating posture with Icahn,” Strine reportedly wrote.

As a result, he said the shareholder vote can take place as long as Lear supplies the appropriate information to shareholders in time. Lear spokesman Mel Stephens told the AP the company is “happy to comply” with the judge’s request. “We will stay on the timetable.”

Seth Rigrodsky, attorney for Classic Fund, said the CEO was looking out for his “substantial nest egg,” tied up in a retirement plan and stock Rossiter couldn’t liquidate without signaling to the market that something was wrong at Lear, according to the report.

Under Lear’s leveraged buyout deal, Rossiter will keep his job, liquidate his large equity stake in the company, and cash out his pension over the next two years, according to the report. Strine said Rossiter did not act inappropriately in negotiating to sell Lear to Icahn at a time that the auto and auto parts industries are struggling. But Strine noted that Lear’s proxy did not disclose that in late 2006 that Rossiter was so worried about the company’s prospects that he mulled resigning in order to protect his pension and equity interests.

The AP pointed out that the Lear ruling was the second time in two days that the Delaware Court of Chancery faulted a public company for hiding from shareholders certain dealings with financial buyers who are seeking to take their companies private.

Strine prevented Topps Co. from conducting a shareholder vote on its buyout offer from Michael Eisner and private equity firm Madison Dearborn Partners. The judge partly blocked that deal because Topps did not tell shareholders that Eisner had assured company management they would keep their jobs after the deal was completed.

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