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Topps Sale Vote Delayed Until Investors Get Rival Bid, More Info

A Delaware state court judge has barred a vote by Topps Co. shareholders on a going-private sale to a group led by ex-Walt Disney Co. CEO Michael Eisner until a Topps rival in the baseball card business has a chance to top that deal.

Vice Chancellor Leo Strine's preliminary injunction ruling in the Delaware Chancery Court said Topps officers and directors prevented investors from getting the best bid from rival Upper Deck Co. and adequate information about the Eisner offer.

It was yet another ruling from the prestigious Delaware business court that cast a wary eye on the inherent conflict of interest in deals that let officers and directors retain their positions while eliminating the public shareholders.

Vice Chancellor Strine said the Topps investors may be able to prove that management did not fulfill its duty to get the best price for the company's stock.

Although Topps made no public comment on the ruling, it postponed a shareholder vote scheduled for this Thursday until the company makes corrective disclosures about both the Eisner and Upper Deck bids and releases Upper Deck from a standstill agreement that froze sale negotiations.

The dispute has its origin in a proxy battle at Topps in which CEO Arthur Shorin allowed dissident shareholders to nominate several directors to the board.

Those dissidents immediately began to press for a sale of either the company or one of its key divisions.

Topps, one of the major producers of sports trading cards packaged with bubble gum, had a brief spike in profits at the turn of the century during the Pokemon card craze but then went back to a downward trend in revenues.

Rival Upper Deck, which acquired the industry's other major card company, Fleer Corp., in 2005, had expressed a perennial interest in a union with Topps, but its ardor was unrequited.

Meanwhile, the dissidents on the Topps board pushed harder and louder for a deal that would inject new life into the company, and that resulted in the offer by Tornante Co. and Madison Dearborn Capital Partners, two private equity companies allied with Eisner.

Upper Deck filed suit in the Chancery Court in March, charging that the Topps directors and officers were preventing the shareholders from choosing its clearly superior offer of $416 million, representing $10.75 per share, instead of Eisner's offer of $384.5 million, or $9.75 a share.

Other Topps investors filed similar suits alleging breach of fiduciary duty against the Topps officers and their allied directors over their purportedly favored treatment of Eisner.

The suits also allege the misuse of a confidentiality agreement that kept Upper Deck from negotiating with a free hand. Upper Deck signed the agreement in order to get the necessary confidential information about Topps' business prospects, according to the lawsuits.

As shareholders, both sets of plaintiffs had standing to file suit in Delaware since Topps in incorporated there.

More investors filed similar suits in New York, where Topps is headquartered, resulting in some jurisdictional wrangling by the two courts.

However, the Delaware action moved faster toward a hearing.

Those plaintiffs jointly moved for a preliminary injunction in expedited proceedings that resulted in a June 11 hearing.

Vice Chancellor Strine said, based on the current record, it appeared that the Topps directors who were allied with management never gave Upper Deck equal treatment as a bidder.

He said the plaintiffs may be able to prove that the defendants misused the standstill/confidentiality agreement to keep Upper Deck from submitting an offer with a revised price that would compete with Eisner deal.

Based on the record for the preliminary injunction, Vice Chancellor Strine said it appeared that, from the outset, the Topps officers and incumbent directors continually presented Upper Deck in a bad light and downplayed the seriousness of its offer.

Conversely, the Topps board failed to reveal key information about the Eisner offer and how it was reached, the vice chancellor said.

"Although Shorin and the other defendants claim that they truly desire to get the highest value and want nothing more than to get a topping bid from Upper Deck that they can accept, their behavior belies those protestations," the judge said.

"In reaching that conclusion, I rely not only on the defendants' apparent failure to undertake diligent good-faith efforts at bargaining with Upper Deck, I also rely on the misrepresentations of fact about Upper Deck's offer that are contained in Topps' public statements," he said.

Even if the standstill agreement technically allows Topps to keep Upper Deck's negotiations at an actual standstill, "that is not a proper use of a standstill by a fiduciary given the circumstances presented here," the vice chancellor held.

"Rather, it threatens the Topps shareholders with making an important decision on an uninformed basis, a threat that justifies injunctive relief," he said.

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