Shareholders of Phoenix Investment Partners of Hartford, Conn. have filed a class-action lawsuit against Phoenix Home Life Mutual Insurance Company, charging its offer to buy out the firm is far undervalued.
Meanwhile, Tweedy, Browne Company of New York, Phoenix Investment's third-largest shareholder, is in talks with lawyers and is considering joining the class-action suit.
On July 25, the day after Phoenix Home Life tendered its offer, five Phoenix Investment shareholders filed lawsuits against Phoenix Home Life, Phoenix Investment, and ten board members of the latter. Phoenix Home Life controls approximately 60 percent of the firm.
Tweedy, Browne Company announced Aug. 11 it had hired Wolf Popper LLP, a New York law firm specializing in shareholder rights. Tweedy, Browne holds 2.1 million shares of Phoenix Investment Partners worth $30.8 million.
Lawyers with Wolf Popper have sent a letter to the boards of Phoenix Home Life and Phoenix Investment expressing disappointment with the offer and recommending Phoenix Investment to turn it down, said Chet Waldham, a partner with the firm.
Phoenix Home Life's offer is currently under review by a special committee of independent directors from Phoenix Investment's board of directors, said Bruce Brewington, an equity analyst with Putnam, Lovell Securities of San Francisco.
The special committee would be wise to reject the offer considering Phoenix Investment's value which, based on the firm's recent performance and earnings, could conceivably be as high as $20 a share, he said.
The class-action complaint states: "On July 24, 2000, the last reported sale price of Phoenix was $10.81 per share. Thus, the price per share offered [$12.50] is a paltry premium to Phoenix's closing price. Moreover, Phoenix stock has traded as high as $12.06 per share in the last year."
The day after Phoenix Home Life made its offer, Phoenix Investment's share price rose 23 percent to $13.31. The market's reaction was an indication that the bid price was too low, Brewington said. At press time, the stock was trading at $14.62.
At $12.50 a share, Phoenix Home Life would be buying the firm at a five percent discount of its cash flow, Brewington said. In acquisitions of investment firms , the company that is buying out a firm will typically pay a premium of roughly 13 percent of the company's cash flow, he said.
Indeed, Phoenix Investment reported strong earnings and sales figures for the second quarter and its performance has been steadily improving. Year-to-date retail sales have increased 59 percent over last year, while revenues in the second quarter increased 14 percent over the second quarter of 1999, according to the company.
Much of Phoenix Investment's recent growth has been in managed accounts through relationships with firms like Merrill Lynch & Co., of Princeton, N.J., Morgan Stanley Dean Witter of New York and A.G. Edwards & Sons of New York, according to the complaint.
Phoenix Home Life's majority ownership of the firm is hindering competitive pricing and will prohibit the minority shareholders from having a fair voice in the matter, the complaint states. No independent third parties will offer competitive bids for Phoenix Investment because of Phoenix Home Life's 60 percent ownership, the complaint alleges. "Indeed, the paltry premium being paid reflects that lack of market check," it states. "Moreover, unless the transaction is to be approved by a majority of the minority shareholders, Home Life will be able to effectuate the transaction without an effective shareholder vote."
Additionally, in their efforts to make Phoenix Investment Partners a private company, Phoenix Home Life and the individual board members named in the suit are not adhering to their fiduciary duties to the shareholders, according to the complaint.