Excerpt from R2 Complaint in the Case on XOHO against Carl Icahn
The Company’s financial advisor endorsed an active exploration of this alternative. Despite this recommendation, the Special Committee made no effort to solicit interest from potential acquirers. Nevertheless, at least four bidders expressed serious – and unsolicited interest in acquiring all or part of the Company at prices that represented a substantial premium above the market price of XO shares. One potential acquirer, Bidder 1, made an offer of $1.0 billion for the entire Company. The Special Committee rejected this offer out of hand.
11. Another potential acquirer, Bidder 2, approached the Special Committee on June 6, 2008 with an offer of $900 million to $1 billion for the Company’s Wireline Assets. After an expedited due diligence process, on June 23, 2008, Bidder 2 made a revised offer of $940 million for the Wireline Business. Bidder 2’s proposal would pay shareholders approximately three times the Company’s current stock price while allowing the Company to keep the rest of its assets, including its billions of dollars in NOLs. In addition, Bidder 2 was prepared to sign transaction documents quickly. The financial advisor to the Special Committee, Cowen & Company (“Cowen”), made clear that the Special Committee should give Bidder 2’s offer very serious consideration. This proposed sale, however, would block Icahn’s effort to obtain further control of XO and thereby obtain the Company’s NOLs.
12. The very next day, June 24, 2008, at a meeting of the full XO Board convened at the offices of Icahn Associates, Icahn and the conflicted board rejected Bidder 2’s offer.
38. In or about January 2004, the Company conducted a rights offering pursuant to its plan of reorganization when it emerged from bankruptcy. Icahn miscalculated the interest other unsecured creditors would have in the rights offering and chose not to participate. To Icahn’s surprise, the rights offering was oversubscribed and the Company was forced to sell substantial additional shares to participating investors. As a result, Icahn’s share of the Company’s equity fell from approximately 83% to approximately 61% – rendering Icahn unable to continue using the Company’s NOLs to reduce the tax liability of his other controlled entities.
39. Realizing his mistake, Icahn offered to buy shares from Plaintiff R2, one of the rights offering participants. Icahn explained to R2 that XO would not be a profitable investment and that Icahn hoped to make money from XO not as an investment entity but as a source of NOLs to offset profits from his other investments. Icahn even explained that the Company’s press releases had been designed to discourage minority shareholders from participating in the rights offering. R2 declined Icahn’s offer.>>
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