Cyclic Hotline
8th Oct 2005, 16:03
Kaman Debate Hinges On A Comma
Minute Technicalities Key To Control Of Company
October 8, 2005
By RITU KALRA, Courant Staff Writer NEW HAVEN -- Control of Kaman Corp. hinges, for now, on whether a complex stock transaction proposed by the company triggers a decades-old business law designed to protect the state's companies from hostile takeovers.
The stakes are high for the Bloomfield-based helicopter maker and its 1,300 Connecticut employees, but the debate in federal court in New Haven Friday was so technical that much of it turned on the interpretation of a single comma in the state's general statutes and the meaning of the phrase "exchange of shares."
At issue is how and whether Kaman can convert its two-tiered stock structure - in which the Kaman family and other insiders own 3 percent of the company's outstanding shares, but more than 80 percent of the company's voting stock - into a single class of common stock in which all shareholders have voting rights.
Hanging in the balance is who, ultimately, gets to control the aerospace firm: a New York hedge fund, the Kaman family or the company's management.
"We have a question of great importance," Judge Mark P. Kravits said to a room crowded with lawyers.
The proposed transaction appears simple, at least in concept. Company officials and the Kaman family have jointly decided to end the peculiar control arrangement by paying insiders 3.58 times the value of regular, Class A shares for each Class B voting share, in cash and stock.
But there are strings attached. Although the reclassification would give all shareholders voting rights for the first time in the company's history, those rights would be severely limited. As part of the deal, the company's directors would serve staggered terms and shareholders could only call special meetings in limited circumstances. Those restrictions were insisted upon by Kaman's board, according to Paul R. Kuhn, the company's chairman and CEO.
About a dozen lawyers argued in court about how to classify the proposed deal in light of a Connecticut business law designed to preserve the independence of the state's companies.
It may sound like an arcane issue, but what hangs in the balance - the right to call the shots at Kaman - is no mere technicality. If the transaction is considered an "exchange of shares," the Connecticut Business Combinations Act would require a supermajority, or two-thirds, of "disinterested" shareholders - those who own less than 10 percent of the company's voting stock - to approve the transaction.
New York hedge fund Mason Capital Ltd., which sued the company, owns about 55,000 Class B shares through its affiliates, enough to block a supermajority vote. And Mason has already committed to buying the other 612,000 voting shares at $55 each. The point of Mason's stock bid and the lawsuit?
"To get control of the company," Michael E. Martino, Mason's 42-year old director, told the court Friday. He refused to say what the hedge fund would do with the company if its bid is successful.
Kaman's board says the reclassification doesn't constitute a share exchange, and so doesn't require a supermajority vote.
Moreover, the board included a provision requiring some members of the Kaman family to be paid in a particular combination of cash and stock. That combination, the company's lawyers said Friday, allows the company to avoid the supermajority vote because it keeps the share of the "interested" shareholders - the Kaman family - from increasing by more than 5 percent, a special exception written into the statute.
But Mason says a supermajority vote is required, anyway, because of another obscure state law that dictates how grammar is to be interpreted and a missing comma in the statute that prevents the 5 percent exemption from applying to the reclassification.
So the day turned on questions of missing commas and the meaning of the word exchange.
"The interpretation of Mason doesn't fit with any vision of how a public company could workably maintain its financial structure over time," said John Coates, a Harvard law professor who served as an expert witness for Kaman Corp.
Not to be outdone, Alan Schwartz, a Yale law professor who offered testimony on Mason's behalf about how to interpret the anti-takeover statute, said such laws fail to serve a public purpose. "Were I king, I would repeal them all," he said.
Kravitz said he would make a ruling as soon as possible.
Meanwhile, Kaman will keep to its original schedule of a special shareholder meeting on Tuesday to approve the transaction based on a simple majority vote. The company has said it will not consummate the deal until it receives a final decision from the court.
Minute Technicalities Key To Control Of Company
October 8, 2005
By RITU KALRA, Courant Staff Writer NEW HAVEN -- Control of Kaman Corp. hinges, for now, on whether a complex stock transaction proposed by the company triggers a decades-old business law designed to protect the state's companies from hostile takeovers.
The stakes are high for the Bloomfield-based helicopter maker and its 1,300 Connecticut employees, but the debate in federal court in New Haven Friday was so technical that much of it turned on the interpretation of a single comma in the state's general statutes and the meaning of the phrase "exchange of shares."
At issue is how and whether Kaman can convert its two-tiered stock structure - in which the Kaman family and other insiders own 3 percent of the company's outstanding shares, but more than 80 percent of the company's voting stock - into a single class of common stock in which all shareholders have voting rights.
Hanging in the balance is who, ultimately, gets to control the aerospace firm: a New York hedge fund, the Kaman family or the company's management.
"We have a question of great importance," Judge Mark P. Kravits said to a room crowded with lawyers.
The proposed transaction appears simple, at least in concept. Company officials and the Kaman family have jointly decided to end the peculiar control arrangement by paying insiders 3.58 times the value of regular, Class A shares for each Class B voting share, in cash and stock.
But there are strings attached. Although the reclassification would give all shareholders voting rights for the first time in the company's history, those rights would be severely limited. As part of the deal, the company's directors would serve staggered terms and shareholders could only call special meetings in limited circumstances. Those restrictions were insisted upon by Kaman's board, according to Paul R. Kuhn, the company's chairman and CEO.
About a dozen lawyers argued in court about how to classify the proposed deal in light of a Connecticut business law designed to preserve the independence of the state's companies.
It may sound like an arcane issue, but what hangs in the balance - the right to call the shots at Kaman - is no mere technicality. If the transaction is considered an "exchange of shares," the Connecticut Business Combinations Act would require a supermajority, or two-thirds, of "disinterested" shareholders - those who own less than 10 percent of the company's voting stock - to approve the transaction.
New York hedge fund Mason Capital Ltd., which sued the company, owns about 55,000 Class B shares through its affiliates, enough to block a supermajority vote. And Mason has already committed to buying the other 612,000 voting shares at $55 each. The point of Mason's stock bid and the lawsuit?
"To get control of the company," Michael E. Martino, Mason's 42-year old director, told the court Friday. He refused to say what the hedge fund would do with the company if its bid is successful.
Kaman's board says the reclassification doesn't constitute a share exchange, and so doesn't require a supermajority vote.
Moreover, the board included a provision requiring some members of the Kaman family to be paid in a particular combination of cash and stock. That combination, the company's lawyers said Friday, allows the company to avoid the supermajority vote because it keeps the share of the "interested" shareholders - the Kaman family - from increasing by more than 5 percent, a special exception written into the statute.
But Mason says a supermajority vote is required, anyway, because of another obscure state law that dictates how grammar is to be interpreted and a missing comma in the statute that prevents the 5 percent exemption from applying to the reclassification.
So the day turned on questions of missing commas and the meaning of the word exchange.
"The interpretation of Mason doesn't fit with any vision of how a public company could workably maintain its financial structure over time," said John Coates, a Harvard law professor who served as an expert witness for Kaman Corp.
Not to be outdone, Alan Schwartz, a Yale law professor who offered testimony on Mason's behalf about how to interpret the anti-takeover statute, said such laws fail to serve a public purpose. "Were I king, I would repeal them all," he said.
Kravitz said he would make a ruling as soon as possible.
Meanwhile, Kaman will keep to its original schedule of a special shareholder meeting on Tuesday to approve the transaction based on a simple majority vote. The company has said it will not consummate the deal until it receives a final decision from the court.