Realogy shareholders are scheduled to vote this morning on whether to approve a buyout deal worth about $9 billion by an affiliate of private equity firm Apollo Management L.P.
The vote, to be held at 10 a.m. Eastern Time at the Hilton Parsipanny, 1 Hilton Court, Parsipanny, N.J., comes less than a year after Realogy Corp. launched as an independent, publicly traded company through a spin-off of Cendant Corp.’s real estate division.
Realogy is the largest real estate brokerage company and franchisor, with company-owned and franchise brands including Century 21, Coldwell Banker, Coldwell Banker Commercial, ERA and Sotheby’s International Realty.
Realogy has had past dealings with Apollo. NRT Inc., a Realogy subsidiary that oversees company-owned brokerage operations, was formed in 1997 through a joint venture by an Apollo Management-affiliated group and HFS Inc., a predecessor to Cendant. It was that deal that powered the company’s rapid real estate growth spurt.
The proposed Realogy deal is just one in a series of massive-scale corporate buyout efforts by private-equity firms. Apollo, along with Texas Pacific Group, in December announced a deal worth about $28 billion to buy casino company Harrah’s Entertainment, for example.
In order to go forward, the buyout deal requires a passing vote by shareholders who represent a majority of the outstanding shares of Realogy’s common stock. All stockholders as of Feb. 20, 2007, can vote at today’s special meeting. The company has announced that it expects to complete the merger on or about April 10.
The proposed merger agreement provides that Realogy will continue to do business under its same name following the merger. The owner of Realogy common stock shares have the right to receive $30 per share, according to the proposal.
Apollo Management L.P., founded in 1990, has invested about $16 billion in a variety companies since its start, both nationally and internationally. The company is now investing in its sixth private equity fund, Apollo Investment Fund VI, which represents about $12 billion in capital.
Realogy shareholders on Dec. 18 filed three class-action lawsuits in Delaware’s Chancery Court related to Apollo’s acquisition of Realogy. Those three cases have been consolidated into a single action. A separate group of four class-action lawsuits were filed in New Jersey’s Superior Court from Dec. 18 to Dec. 22, and those cases have also been consolidated.
In U.S. Securities and Exchange Commission documents related to the proposed deal, Realogy officials stated that there is a tentative agreement to settle the consolidated New Jersey shareholder lawsuits. This proposed agreement is settlement to court approval and other conditions — “The settlement of the New Jersey action is conditioned upon dismissal, with prejudice, of the Delaware action,” according to SEC documents.
Realogy officials offered no comment this week about the status of the litigation.
The Delaware action alleges that Realogy “and certain officers and directors breached their fiduciary duties in connection with the sale of the company to Apollo Management VI; that the purchase price of $30 per share is at least $5 less than the fair price for the stock; that the company is under Mr. Henry Silverman’s domination and control such that a special committee of the board of directors cannot act in an independent and disinterested manner, that the defendant directors approved the proposed sale without obtaining, soliciting or attempting to solicit other higher bids for the Company,” among other factors.
Also, the Delaware action charges that “the proposed sale is an attempt by defendants to aggrandize their personal and financial positions and interests at the expense of the public stockholders; and that the proposed sale will deny the public stockholders their right to share appropriately in the true value of the company,” and that Apollo Management officials “knowingly aided and abetted the alleged breaches of fiduciary duty.”
The shareholders seek “preliminary and permanent injunctive relief against the proposed sale; a declaration that the proposed sale is unfair, unjust and inequitable; compensatory damages; and attorneys’ and experts’ fees and expenses,” according to a Realogy SEC filing, and “the company believes that the allegations in the Delaware complaint are wholly without merit and intends to vigorously defend against the action.”
The proposed settlement agreement with the New Jersey action provide that Realogy officials “deny all allegations of wrongdoing, fault, liability or damage.”
Phillip Phan, a management and technology professor at Rensselaer Polytechnic Institute in Troy, N.Y., and author of “Taking Back The Boardroom: Better Directing for the New Millennium,” said shareholder lawsuits have become far more common following the Enron debacle and the passage of the Sarbanes-Oxley Act that is intended to deter corporate fraud.
“We see more (shareholder) suits being brought up, typically with respect to acquisitions.” And typically these types of cases settle, he said, with the company that is targeted by the suit not accepting any wrongdoing for its actions. “The wind seems to be blowing in favor of more shareholder lawsuits. You look at Congress and what they are now doing, trying to strengthen Sarbanes-Oxley. There really isn’t much movement among lawmakers to stem the flow of this (rise in shareholder lawsuits,” Phan said.
There seems to be a sort of “corporate ambulance chasing” these days in shareholder lawsuits, he said, adding, “I’m not convinced that they necessarily benefit the shareholders.”
Such litigation can be costly, he said, and shareholders “in the end … actually end up paying for it — basically for (their) own actions.”
Pending legal actions are commonplace for major publicly trade companies, he also said, and usually these actions aren’t deal breakers for companies in a merger or acquisition deal.
“In general private-equity deals would run a greater risk of these (shareholder) lawsuits,” Phan also said.
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