When HP recently agreed to buy 3Com for $2.7 billion, we learned two things: (1) The deal announcement was preceded by brazen insider trading, and (2) 3Com is one of few publicly-traded tech companies whose value has risen more than 20% since last fall’s financial collapse (based on how much Bain Capital was planning to pay in 2007, before the feds intervened).
Today we got updates on both issues.
Bloomberg reports that the SEC is investigating the insider trading situation, in which trading volume on $5 strike calls grew by 40x just hours before HP sent out its press releases.
It’s obviously a welcome development, and perhaps signals that the SEC is finally getting tough on an illicit epidemic that has run rampant for years. Why it never did anything during the buyout boomtimes of 2006 and 2007 — when option volume regularly bloomed before a take-private offer was made public — is beyond me, but perhaps Galleon really will be the beginning of something rather than a notable exception. If it’s primarily because the SEC is tired of getting egg on its face, so be it. The road to grace is filled with self preservation…
The second issue is that at least two groups of 3Com shareholders have filed class-action lawsuits against company management, arguing that the HP offer was too low to accept. TechCrunch reports on one in Delaware, while I found one filed in Massachusetts (download here). Never mind that the $7.90 offer price was 22% higher than what 3Com agreed to sell for just two years ago, or that the company’s stock hasn’t reached $7.90 since January 2004. As an example of the plaintiffs’ brilliance:
“The $7.90 per share offer price does not reflect the true inherent value of the Company that was known only to defendants, as directors and officers of 3Com, at the time the Proposed Acquisition was announced.”
So, let me get this straight: You don’t know how much the company is worth, except you know that HP offered a bum deal. Great. You now have the intellectual honesty of a cable talkshow host.
Whereas the SEC has been historically negligent, these folks are simply using the courts to satisfy their optimistic greed (not that they aren’t entitled to such endeavors, as shareholders).
My best guess is that both of these situations will be resolved in the exact opposite manner to which they would have been two years ago: The SEC comes down with a hard enough hammer to disuade future scumbags, and 3Com/HP don’t dow to the class-action pressure. But that would require that sense prevails, which is rare when it comes to M&A…