Shareholder Seeks Halt to Tender Offer by Belzbergs
By CONOR DOUGHERTY
Staff Reporter
A shareholder has filed a lawsuit against Beverly Hills-based holding company Westminster Capital Inc. and members of the controlling Belzberg family, claiming that the wealthy Canadian clan is using its power over Westminster to buy out minority shareholders at too low a price.
Plaintiff Barry Blank, owner of 336,000 Westminster shares, is attempting to kill a tender offer made by Westminster on April 18. The proposal would take the company private by buying up the 34 percent of shares that insiders don’t own at $2.80 each.
In the lawsuit, filed in Delaware Chancery Court one day after the tender offer was made, Blank accuses the Belzbergs of taking advantage of a lull in Westminster’s stock price to bully other shareholders into selling their holdings for less than they are worth. Since the Belzbergs and their allies own about 66 percent of Westminster’s stock, the complaint argues, they were “in a position to, and in fact did, dictate the inequitable tender offer.”
On May 8, a Delaware court refused to grant Blank a preliminary injunction halting the deal. However, the lawsuit is moving forward, and the stock has been trading above the offer price of $2.80, indicating that investors expect it to be raised, if the deal is ultimately completed. Recently, Westminster’s thinly traded stock exchanged hands at $2.85 a share. It hit a 52-week high of $3.13 on May 30.
Blank’s attorney, Robert Harwood, declined to discuss the lawsuit.
Westminster officials also declined to comment. The tender offer price represents a 40 percent premium to the stock’s price before the offer was made. The initial offer, which expired on May 24, has been extended to June 21.
Offer below book value
In the lawsuit, Blank argues that the offer price is far the company’s book value pegged by the company itself at $4.65 a share only 16 days before the offer was made.
The investment bank hired by Westminster to conduct a fairness review of the transaction asserts that shareholders would get much more for their shares if the company were broken up and sold. Westminster has four business segments: point-of-purchase display and packaging, audio-visual equipment rental and sales, group purchasing services and finance and secured lending.
In its fairness opinion to Westminster’s board, L.A. investment banking firm Houlihan Lokey Howard & Zukin places its seal of approval on the deal, but not without disclaimers.
Houlihan said it had been assured that Westminster has no plans to liquidate the company, or sell it to someone else.
“We assumed for purposes of its valuation analysis that these were not available options,” states the document, filed with the Securities and Exchange Commission, “and did not consider the company’s liquidation value” in determining whether the offer was fair to Westminster stockholders.
“We informed you and the company that a valuation based on a liquidation analysis would result in a significantly higher valuation range for the shares,” Houlihan Lokey said in the letter.
Houlihan Lokey declined to comment.
A self-professed leader in the field of fairness opinions, Houlihan Lokey has been criticized for its work on another deal, the valuation of Woodland Hills-based movie camera maker Panavision Inc., controlled by billionaire investor Ronald Perelman.
Perelman used another company he controlled, licorice maker M & F; Worldwide, to purchase Panavision at a price that M & F;’s other shareholders considered too high. They have filed a lawsuit to block the deal.
In that transaction, Houlihan valued Panavision’s shares at $17, despite the company’s $4 trading price and heavy debt load.
Such fairness opinions have come under scrutiny for a perceived lack of objectivity. “(Fairness opinions) are like having the movie critics working for the movie studios, it doesn’t give a lot credibility to the movie,” said Nell Minow, editor of the Corporate Library, a Web site that tracks corporate governance issues.
Westminster defends price
In its filings, Westminster defends the price it offered. Prior to announcing the tender offer, its stock closed at $2.00 a share making the $2.80 figure appear to be a substantial premium. Additionally, the company points to an inter-Belzberg family transaction shortly before the offer took place to justify the price offered to outsiders.
Two days before the offer was announced, Chairman and Chief Executive William Belzberg purchased 1.5 million shares of Westminster stock from family members, raising his ownership stake by about 18 percent.
The purchases from William Belzberg’s brother, Samuel Belzberg, and Samuel’s son Marc, for $2.80 a share, were “a significant factor in (a special board committee’s) determination of a tender offer price,” according to a Westminster filing with the SEC.
Blank’s suit criticizes this rationale. He notes that the stock traded as high as $2.95 in the previous six months, and in an annual report dated April 2, Westminster reported the much higher book value of $4.65 a share.
The lawsuit also alleges Westminster sought to mislead investors by making its results look worse than they actually were.
Run by locally based William and Hyman Belzberg, the company is the surviving entity of FarWest Savings & Loan, a long defunct institution the Belzbergs used to buy high-yield bonds from Drexel Burnham Lambert.
Before FarWest’s demise, it sued Michael Milken and Drexel claiming that it was cheated out of funds by junk bond trading and illegal manipulation of the junk bond market. The company changed its name to Westminster Capital before collecting $26 million from Milken and bankrupt Drexel; the money was re-deployed into various investments.
