QVT Financial’s QVT Fund has filed petitions for an injunction against Galatasaray Sportif, as well as the individual members of Sportif’s board of directors, in order to prevent Sportif from completing what QVT views as an illegal merger with Sportif’s majority shareholder, Galatasaray Spor ve Futbol.
QVT Fund is the largest minority shareholder in Sportif, currently holding approximately 17.7 per cent of the public stock.
Dan Gold, chief executive officer of QVT, says: “Sportif must not be permitted to misappropriate the value of the investment of minority shareholders through a coercive tender offer, at an egregiously low price, on unclear terms, and with no alternative for the investors who oppose it. By pursuing the tender and the consummation of a merger, Sportif and its board of directors have abdicated their responsibility to act in the best interests of the company and all of its shareholders.”
QVT believes that the tender offer launched by Futbol for Sportif is part of a scheme by Futbol to avoid repaying the TRY343m in outstanding related-company loans extended illegally by Sportif to Futbol. T
he funds used to make such loans were part of the net profit of Sportif that the management and board of Sportif had pledged to distribute to all shareholders in offering documents and official board statements. Instead, these were diverted into loans to Futbol and other related parties.
Pursuant to a decision by the Capital Markets Board of Turkey, those loans are now due on 28 March 2010. The timing of the tender offer implies that Futbol will attempt to cause Sportif to enter into a merger agreement immediately prior to the loans’ CMB mandated due date, contrary to the interests of minority shareholders and for the purpose of avoiding the repayment of such loans and the distribution of such amounts as dividends to minority shareholders, says QVT.
The petitions, filed in the Istanbul 3rd and 4th Commercial Courts of First Instance, seek the appointment of an independent trustee to supervise Sportif and prevent the board of directors from completing the merger with Futbol.
“If the tender offer is not enjoined and a merger is permitted, the directors of Futbol and Sportif will have successfully perpetrated a blatant and outrageous fraud in the form of forgiven loans and a failure to pay required dividends not taken into consideration when determining the tender offer price,” says Gold.
QVT also has filed suit against the CMB in relation to CMB’s 9 March 2010 decision authorising the tender offer. The lawsuit alleges that the CMB failed to apply the proper criterion for determining the minimum tender price and violated its duties to protect the interests of the minority shareholders.
The lawsuit, filed in the Ankara Administrative Court on 15 March 2010, contends that the CMB is acting in violation of its duty to protect investors and enforce Capital Markets Laws designed to protect investors in the context of tender offers, particularly given the coercive nature of the tender and the absence of appropriate disclosure regarding the proposed subsequent merger.
The lawsuit alleges that the lack of detail regarding the merged entity, including the additional effect on minority shareholders and potential dilution, does not give shareholders a reasonable basis upon which to make an investment decision.
QVT’s lawsuit against the CMB argues that, in determining that TRY155.77 is an appropriate minimum tender price for the publicly-traded shares of Sportif, the CMB failed to consider that the tender price is below the market value of the shares listed on the stock exchange and that it does not take into account the TRY343m in outstanding loans owed to Sportif by Futbol and other related parties, which alone amount to TRY169 per share. It also does not take into account the unpaid dividends or future expected cash flows of Sportif from valuable licensing agreements.
Specifically, the tender price for Sportif shares is almost eight per cent less than the value of Sportif shares on the Istanbul Stock Exchange on the day of the decision. In connection with the lawsuit, QVT has asserted that the tender price is more than 75 per cent below the fair value of the shares based on a valuation of Sportif by an independent, internationally recognized valuation firm engaged by QVT.
QVT met yesterday with the chairman of the CMB to discuss its concerns related to the tender offer and the proposed merger. QVT also has provided the CMB, in advance of a meeting of their board to be held tomorrow, with a written summary of its concerns about the Sportif/Futbol merger and recommended actions which the CMB has the authority to undertake to protect investors’ rights. QVT has in particular asked the CMB to suspend the tender offer while the CMB investigates if laws have been violated as a result of the actions taken by Sportif in relation to the proposed merger with Futbol.
