Bass Group Wins Injunction in Bitter Takeover Battle : Court Blocks Macmillan Reorganization Plan

NEW YORK —  A Delaware judge Thursday blocked publisher Macmillan from implementing a massive reorganization designed to circumvent an unwanted bid from the Robert M. Bass Group of Texas.

Delaware Chancery Court Vice Chancellor Jack B. Jacobs deliberated for nearly five weeks before he issued a 58-page opinion finding that Bass had adequately proven that Macmillan’s restructuring “represents an unreasonable and disproportionate anti-takeover response. . . . (thus) entitling them to an injunction.”

The Bass Group had requested the preliminary injunction last month to stop Macmillan from splitting the nation’s third-largest publishing house into two separate entities.

Macmillan issued a statement saying it was taking an expedited appeal to the Delaware Supreme Court, seeking to reverse the decision and allow the restructuring to proceed.

A spokesman, who was not identified in the statement, called Jacobs’ ruling “erroneous as a matter of law” and said Macmillan was confident of succeeding on appeal.

Attorneys for Bass applauded the ruling. “Obviously, we think the case was rightly decided and we are gratified with the result,” said David C. McBride of the Delaware law firm Young, Conaway, Stargatt & Taylor, one of the firms that represented Bass.

Jacobs’ opinion notes that to substantiate the merits of anti-takeover defensive maneuvers such as Macmillan’s, companies must first prove that the takeover attempt is a danger to corporate policy and effectiveness. Second, the company must show that the measures they adopt to counter the threat are reasonable compared to the danger posed.

Jacobs’ did not find persuasive Macmillan’s argument that the Bass offer posed a threat, nor did he find Macmillan’s response--the restructuring plan--commensurate with the threat. Stating that the minimum “reasonable response” to the Bass offer would be to offer stockholders a higher value than the Bass Group offer, or a choice between equivalent values, Jacobs wrote, “the restructuring does neither.”

Macmillan and Bass have been locked in an increasingly hostile takeover battle since mid-May, when Bass first offered an unsolicited $1.6 billion, or $64-a-share, to take over the company. Macmillan rejected Bass’s offer as “inadequate” and proposed to restructure the company into a publishing corporation and an information services corporation.

At the same time, Macmillan offered to pay out $1.36 billion to shareholders in a one-time special cash dividend of $52.35 for each of the company’s 26.01 million shares.

The Bass Group, which owns 9.2% of Macmillan’s common stock shares, then raised the ante to $73 a share, or $1.9 billion, in June and filed suit in the Delaware Court of Chancery to halt the restructuring plan. Jacobs issued a temporary restraining order June 11, just before the clock ran out on Bass and Macmillan began to issue the dividends to shareholders.

Jacobs notes in his decision the discrepancy between the values of the Bass offer on the table--$73 per share--and the Macmillan restructuring plan, which is valued at $64.15 a share and writes that Macmillan’s “rationales, even if accepted, do not justify forcing shareholders to accept an economically inferior transaction while, at the same time, precluding them from considering a superior one.”

Protect Shareholders

Industry analysts had expected the judge to grant the injunction.

“Judges tend to look hard at companies’ attempts to extract themselves from these types of deals, which is what it appeared Macmillan was trying to do,” said John Walsh, a senior analyst at the New York-based Fitch Investors Services.