In the Walden case, an arm of Hicks, Muse(still very much in business) bought out Walden Residential, and like Richard posts, structured the buyout -initially- to leave the preferred shareholders hanging-out of the deal. Imagine owning a preferred stock that would no longer be traded publicly, could be leveraged, etc.. The effect would have been awful, and the price of Walden preferreds dropped immediately from mid-20s to about 14(as I recall).
The market soon figured that REIT preferreds, as a class, were likewise vulnerable,
most/all such shares dropped, typically from the low 20s to the mid-teens.
Eventually, Hicks, Muse backed-off and modified their deal with Walden(after a class-action suit was filed)and as the cloud eventually lifted, preferred shares recovered to where they are today(helped, too, by the drop in interest rates over the same period).
From everything I have been told by various REIT CEOs, an aggressive buyer could still
try to do this type of deal again. Since the matter never got to court, sorting out the rights of preferred shareholders in this regard was never resolved. From what I hear, in court, the preferred shareholder may well have not prevailed.
That's why preferreds, in some respects, may be riskier than common. IMHO.
All things being equal, at least a hostile buyer HAS to buy out common shareholders. |
