Avalon Cable of Michigan Inc.'s purchase of the
remaining stock in small cable operator Mercom Inc. may be in jeopardy, as one of
Mercom's larger shareholders is unhappy with the deal.
The shareholder, Gabelli Asset Management Co., said it will
go to court to block what it believes is an underpriced deal.
Mercom was 62 percent-owned by Cable Michigan, the
Michigan-based MSO that was purchased by Avalon last year in a deal valued at $435
As part of that deal, Avalon offered to buy out other
Mercom shareholders for $11 per share. Later, Avalon increased the buyout proposal to $12
"They cut a price in August 1998," said Mario
Gabelli, chairman of Gabelli Asset Management. "Since then, circumstances materially
improved, but they did not change the price."
Gabelli said CIBC Oppenheimer Corp., Avalon's advisor,
was "woefully behind in getting an updated opinion" on the stock sale.
"Anybody who follows cable will tell you that any time
you have positive dynamics, prices should improve," Gabelli said. "It's the
same thing as if they had negative dynamics -- these guys would have walked away."
Gabelli Asset Management owns some 535,000 shares, or about
11.2 percent, of Mercom's outstanding stock.
Joel Cohen, president of New York-based Avalon, could not
be reached for comment.
Avalon said it closed the deal March 26, agreeing to pay
$12 per share, or $21.9 million, for the 38 percent of Mercom stock that it didn't
Gabelli Asset Management believes that the Mercom shares
are worth about $20 each. Increasing the price paid for the shares to that level would
boost the total value of the deal to about $36.5 million.
"On behalf of our clients, we're working hard,
and we will go to court," Gabelli said. "We've done this before with
Pacific [Telesis Group]."
In 1995, Gabelli & Co. Inc. sued California regional
Bell operating company PacTel after it had secured a deal to sell its stock to its parent
company, PacifiCorp Holdings Inc., for $30 per share. Gabelli believed that PacTel stock
should have been valued at $50 per share in the deal.
Although Avalon considers the deal done, Gabelli Asset
Management has 10 days from the closing of the agreement to file a dissent with the state
of Delaware, where Mercom is incorporated.
Also according to Delaware law, Avalon has 100 days after
that to respond.
Avalon is an MSO serving more than 223,000 cable-TV
subscribers in Michigan and 20,000 subscribers in the Northeast.