Mercury Air Fights for Control With U.K. ‘Corporate Raiders’
WALL STREET WEST
Several investment funds linked to British money manager Christopher H.B. Mills have targeted Mercury Air Group, the Los Angeles aviation services firm, with the intent of overthrowing management.
In a Securities and Exchange Commission filing, Mills and four affiliated investment funds, which together own about 11 percent of Mercury Air’s stock, said they are considering ways to remove all its directors.
They want the company to appoint an independent investment bank to find ways to “maximize shareholder value,” which could involve restructuring the company or a merger.
Mills, a director of the publicly held North Atlantic Smaller Companies Investment Trust in the U.K., also serves as a director of London-based JO Hambro Capital Management Ltd., Acquisitor Holdings Ltd. of Bermuda, two of the other related entities holding Mercury Air stock.
The battle has been heating up over summer.
In June, Mercury Air filed a lawsuit in federal district court in Los Angeles alleging that the investment groups made false statements in SEC filings and were using trade secrets from a competitor to take over Mercury Air’s assets.
Wayne Lovett, Mercury Air’s executive vice president and general counsel, characterized the funds as “corporate raiders, not investors.”
“They’re targeting us,” Lovett said.
Mercury Air successfully fought back three shareholders lawsuits filed last year that accused it and several executives of self-dealing. Those lawsuits were all dismissed.
In the recent SEC filing, the British funds resurrected allegations first aired in those lawsuits claiming that Chief Executive Joseph Czyzyk, Chairman Philip Fagan and Frederick Kopko, a director, purchased a controlling interest in the company’s stock through a partnership they control called CFK Partners LLC.
The complaint claimed the three executives sold the company’s headquarters and other real estate to the same partnership.
Lovett conceded that some of the practices the executives engaged in would not be allowed anymore under Sarbanes-Oxley legislation.
The transactions included Mercury Air’s purchase of stock from the partnership to fund a stock incentive plan for top executives, and company loans to top officials for stock purchases. The loans are written off over a 10-year period.
Mercury Air’s board has appointed a special litigation committee to review the allegations.
“We know and are aware of our obligations under the law,” Lovett said. “We have been looking objectively and closely at our corporate practices. We are making sure we are in compliance with the rules.”
Kate Berry
Angelic Rise
Tech Coast Angels, the Laguna Beach network of wealthy individuals who fund early-stage companies, has stepped up its pace of investments in the first half of 2003.
For the first six months of the year, Tech Coast Angels invested $2.7 million in nine Southern California companies. By comparison, in all of 2002 the group funded 19 companies for a total of $3.6 million.
The group of 220 businessmen, who were meeting in Orange County last week, also pointed to a resumption in their own fund-raising in the first half as early evidence that venture capitalists have plunged back into the market.
Angel investors raised a much-larger amount in follow-up funding $21.6 million from co-investors in the first six months of 2003.
“Everybody is saying we need to put money out because we’ve been sitting on this money for a year,” said John Morris, president of the Tech Coast Angels Los Angeles network.
Six of the companies that received funding are located in Los Angeles. They include Next Estate Communications Inc., a provider of prepaid credit cards that has already received funding from Sequoia Capital, and PhatNoise, a company founded in 1999 by colleagues at UCLA’s Electrical Engineering department who wanted to create a digital car audio system.
IP3 Networks Inc., an e-commerce software provider, Rightsline Inc., a developer of enterprise software, OptiNetrics, an optical component firm, and Luxim, a developer of microwave plasma products, also received funding.
One of the main goals of the Tech Coast Angels is to spread risk around so that no single investor is left holding the bag on any company.
“Everybody wants to be in early, but you don’t want to be naked,” Morris said.
Kate Berry
