No Short Form Merger for XO

October 20th, 2008 by · 3 Comments

On Friday I speculated that Carl Icahn might be planning a 'short form merger' for network operator XO Communications (XOHO), as he increases his holdings to near 90%.  However, it turns out that this threshold is not as interesting as it might have otherwise been.  Back in late July, when Icahn refinanced XO's senior debt with all that convertible preferred and perpetual preferred stock, buried in the agreement was a "Standstill" provision.

This standstill provision acts to limit specifically the fear of a short form merger by forbidding him to exceed 90% in this way.  If Icahn wants to buy XO he will have to either tender for the remaining shares or else make an offer to the board that would be considered by its 'disinterested' directors (i.e. those who he doesn't otherwise employ elsewhere).   Of course, that won't stop him if he should really want it, he has already shown he will play hardball when he feels like it.

So what is Icahn doing buying shares?  Well, apparently he thinks they are cheap.  If he *were* going to take XO private, buying part of it now during the height of a financial crisis would certainly make it cheaper, and by buying out a few of the larger minority shareholders he might reduce the possibility of a court challenge when he does.  And besides, if he comes out and offers $0.75/share for a stock now trading at $0.20, are they really going to to turn him down?

For those who actually like to read legalese, here is the standstill agreement from the SEC document:

6.4. Standstill.
Each Purchaser agrees that neither it, nor any of its Affiliates, shall, directly or indirectly, consummate any transaction (including the conversion of the Convertible Preferred Stock or the 6% Preferred Stock into Common Stock, the exercise of warrants or options to purchase Common Stock or a merger pursuant Section 253 of the Delaware General Corporation Law), if as a result of such transaction, the Purchaser or such Affiliates would own at least 90% of the outstanding shares of each class of the Company’s capital stock, of which class there are outstanding shares, that absent the provisions of Section 253 of the Delaware General Corporation Law, would be entitled to vote on a merger of the Company with or into such Purchaser or Affiliate under the Delaware General Corporation Law, except solely as a result of (i) a tender offer for all of the outstanding shares of Common Stock by the Purchaser or its Affiliates wherein a majority of the outstanding shares of Common Stock not held by such Purchaser or its Affiliates are tendered or (ii) a merger or acquisition transaction by the Purchaser or its Affiliates that has been approved by a special committee of the Company’s Board of Directors comprised of disinterested directors in respect of such merger or acquisition wherein the Purchaser or its Affiliates acquire all of the outstanding Common Stock of the Company. This Section 6.4 shall immediately terminate and be of no further force or effect upon the consummation of a transaction pursuant to clause (i) or (ii) of this Section 6.4. For the avoidance of doubt, this Section 6.4 shall not affect or restrict increases in the liquidation preferences of any securities of the Company, including the Convertible Preferred Stock, as in effect on the date hereof.

Why can lawyers ignore english rules about run-on sentences?  I mean, they do go to school and all that... sheesh.

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Categories: Financials · Internet Backbones · Mergers and Acquisitions

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3 Comments So Far


  • Anonymous says:

    Rob,

    Has there been anything filed subsequently that would invalidate this standstill agreement(allow a short form merger) or it just as likely could be void bc he has gone through 90%?

    • Rob Powell says:

      Not that I know of, I think according to current status he can’t do the short form route. At least, not without making a new agreement with himself… 🙂

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