Insight Communications Co. released the proxy statement for its planned management buyout, revealing in detail some of the factors that led to the company’s chairman, CEO and private-equity backers raising their offer for the MSO’s remaining shares.
Insight’s chairman, Sidney Knafel, its CEO, Michael Willner, and private-equity firm The Carlyle Group announced in March their intention to buy the remaining shares of Insight the two men didn’t already own for $650 million ($10.70 per share). About four months later, the group increased its offer for Insight to $720 million, or $11.75 each. The proposal is subject to shareholder approval.
INDIES SOUGHT $3 BUMP
According to the proxy statement filed on Aug. 19, the independent directors the company’s board named to evaluate the proposal — investment banker David Lee and Oxygen Media chairman and CEO Geraldine Laybourne — had wanted the group to increase its offer by as much as $3 per share.
While that price was mainly a negotiating point, talks between the special committee and the buyers came to a head in May, when Comcast Corp. — which owns a 50% interest in Insight Midwest, the partnership that includes most of Insight’s 1.3 million subscribers — indicated that it would accelerate the dissolution of the partnership.
At Comcast’s analyst day meeting on May 10, co-chief financial officer Lawrence Smith said it was likely Comcast would exercise its right to dissolve the partnership — and take control of half of Insight’s subscribers — on Dec. 31.
That statement apparently concerned the Carlyle Group, which according to the SEC document, considered pulling out of the deal.
During a June 3 meeting, “the representatives of the buyers informed David Lee and Geraldine Laybourne that the buyers had developed concerns about the proposed transaction that had led them to reconsider whether to proceed with its proposal,” the document stated, based on the possibility of an early Comcast dissolution, a recent downgrade of Insight’s credit rating and competitive pressure from telephone companies concerning digital subscriber line pricing.
The buyers declined to raise their offer for the company based on those concerns.
But on June 21, Knafel, Willner and Carlyle agreed to raise their price to $11.20 per share, which the special committee rejected as too low. A subsequent offer of $11.60 per share was also declined.
In July, the buyers proposed raising their offer to $11.75 per share, but only if a series of class-action suits filed in Delaware District Court were settled.
After several back-and-forth negotiations, Insight settled the class-action suits on July 28.
According to the SEC document, included in the settlement agreement was that the merger would need approval from a majority of shareholders (other than shares held by the buyers or Insight management); that the buyers would provide the plaintiffs’ attorneys with additional discovery information concerning the buyout as warranted; and that the termination fee payable to the buyers be reduced from $15 million to $10 million.