Washington Redskins owner Jack Kent Cooke dropped his hostile takeover bid for Multimedia Inc. yesterday after the company agreed to repurchase his shares in a greenmail transaction that hands Cooke a pretax profit of almost $25 million.
Cooke, who owns about 1.6 million shares of Multimedia, announced earlier this week that he planned to launch a hostile $70.01-a-share bid for control of the South Carolina-based media company. But yesterday, Cooke said he was dropping his bid and selling his 1.6 million shares to the company for $70 a share. Cooke paid about $55 a share for his stock. Trading was suspended for most of the day yesterday in Multimedia, which closed at 58 3/8, down 4 7/8.
"Greenmail" is the popular name for a transaction in which a company repurchases shares at a premium price from a stockholder who is threatening to try to acquire control of the company. In return, the stockholder agrees to drop his takeover bid. The practice is controversial because the company does not offer other stockholders the same deal. In this case, the company also agreed to reimburse Cooke for certain unspecified expenses incurred in his takeover threat.
Multimedia Chairman Wilson C. Wearn said he was pleased that Cooke's shares are being repurchased. He said "the resolution of this matter with Cooke is in the best interest of Multimedia's shareholders."
The announcement of the greenmail deal came exactly one week after the Federal Communications Commission gave Cooke interim approval to proceed with his bid by approving the use of a novel takeover technique involving a trustee. Before last week's decision, the FCC had no mechanism for bidders to use to speed up lengthy proceedings, a situation that discouraged some hostile takeover offers for media companies.
The combination of the FCC decision last week and Cooke's statement earlier this week that he planned to make a bid for Multimedia gave him tremendous bargaining power because Multimedia's management and founding families are trying to proceed with their own plan to purchase the company. The company's insiders own about 44 percent of Multimedia's stock and are offering shareholders about $55 a share under their proposal. They apparently decided that, if Multimedia did not repurchase Cooke's shares, and in return secure a promise that he would drop his offer, their recapitalization plan would be derailed.
The greenmail deal must be approved by a South Carolina court, which also must approve the fairness of the Multimedia recapitalization plan. Multimedia stockholders also must approve the deal. The parties have agreed that Cooke's shares will be voted in the same manner as those voted by a majority of the shareholders who are unaffiliated with the management and the founding families of Multimedia.
The agreement between Cooke and Multimedia also calls for the dismissal of litigation between the parties. In addition, Cooke agreed not to make any further proposals to acquire Multimedia and not to purchase any Multimedia shares for five years after the proposed recapitalization plan.
"While FCC Chairman Mark Fowler said the commission should not be used 'as a sword or a shield' in takeover battles, the FCC sure looks like a sword on this one," said Andy Schwartzman, director of the Media Access Project. "We think Fowler is ignoring the interest of the public. I think this deal clearly isolates the speciousness of Fowler saying 'we're just going to remove ourselves from the process.' "
"I'm disappointed that I was unable to persuade Multimedia management and the family founder to sell to me," Cooke said yesterday. "I had earlier been led to believe that some part of the family founders would be willing to sell their Multimedia stock to me.