On August 2, 2004, Barbara Cox Anthony and Ann Cox Chambers, two sisters who together owned 73% of Cox Communications, announced that they wanted to cash out the minority shareholders of their company. Their initial offer was $32 per share, or a 14% premium to the preannouncement trading price of approximately $28 per share.
Following the blueprint laid out by the Delaware courts, Cox Communications formed a special committee of three independent directors to negotiate with the Cox sisters. Over the following four months, the special committee bargained hard: counteroffering at $38 per share, walking away from the table at several points, and finally agreeing to a deal at $34.75 per share. In the end, the Cox sisters paid a 24% premium to the minority shareholders, or $1.7 billion in incremental value over the predeal market value of the minority shares, and $675 million more than their first offer.
Presumably, the Cox sisters felt the deal made sense, or they would not have agreed to it. Yet, due to a recent change in Delaware corporate law, the Cox sisters had an alternative. They could have unilaterally made a tender offer to the minority shareholders, which would have minimized the special committee’s influence in the negotiation. Analysis of comparable transactions suggests that the Cox sisters paid approximately $500 million more than they would have paid had they taken this other route.
The lesson: Cutting-edge legal rulings may allow you to change the game to your advantage. Don’t abandon your position of strength unless you must!
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