Who's Filing Now?

Once again, as Wall Street waits for happy hour, we Fools wade into 8-K filings that, if the timing is to be believed, executives would rather you not read.

Filings like this one from Sofnic Solutions (Nasdaq: SNIC  ) and this one from BEA Systems (Nasdaq: BEAS  ) . Both admitted failing to meet basic listing requirements thanks to delayed financial filings. Sonic and BEA put off reports to the SEC in order to perform internal reviews of their stock option practices.

Thanks, but we're not for sale
But these sorts of filings have become far too common. More interesting to me was an 8-K from grocer Kroger (NYSE: KR  ) , in which CEO David Dillon confronted speculation published in The Wall Street Journal that a private equity buyout may be near. Quoting from his letter to employees:

With the ready availability of significant capital in private equity funds and Kroger's attractiveness as a franchise, rumors and speculation are not surprising. Unfortunately, the kind of speculation contained in the article can be disruptive to our associates and to the conduct of our business. I want you to know neither management nor our Board of Directors has any interest in pursuing a leveraged buyout transaction.

OK, but Kroger, like peers Safeway (NYSE: SWY  ) and SUPERVALU (NYSE: SVU  ) , is highly leveraged. Oppressive debt rarely leads to growth. For Kroger, it's led to contraction -- the chain has cut its store count in each of the past eight quarters:

Reporting Period

Store Count

Q1 2005

2,532

Q2 2005

2,524

Q3 2005

2,515

Q4 2005

2,510

Q1 2006

2,507

Q2 2006

2,483

Q3 2006

2,477

Q4 2006

2,473

Source: Kroger

Fortunately, the cuts have helped Kroger make notable improvements in its capital structure. For example, debt is today 143% of equity, down from 218% two years ago. But 143% is still incredibly high. Bringing in capital and talent by way of a buyout hardly seems like a bad idea.

When shareholders attack
But my favorite filing this week comes courtesy of ailing database software provider Embarcadero Technologies (Nasdaq: EMBT  ) , which reported that it would accept a $7.20-per-share buyout offer from private equity investor Thoma Cressey Bravo.

How unsurprising. The sale of Embarcadero has to be one of the most entertaining, encouraging, and somewhat chilling events chronicled in the SEC's EDGAR database.

Let's begin with some background. According to this incredibly detailed 13-D filing, activist hedge fund manager Robert Chapman first began considering a stake in Embarcadero last August though his firm, Chapman Capital. The following month, however, Thoma Cressey Bravo bid $8.38 a share for the firm.

But the pending merger was called off in December because of what Chapman Capital calls a "developing stock options backdating scandal." The month before, the hedge fund manager came short of investing when it says it found that Embarcadero director Samuel Spadafora had left Chordiant (Nasdaq: CHRD  ) at roughly the time his former employer became embroiled in its own backdating scandal.

Chordiant has since been cleared of wrongdoing, but Chapman Capital has remained critical of the board's stewardship. Quoting from the 13-D, which was originally filed in early March:

Mr. Chapman communicated Chapman Capital's expectation that the Board's failure to consummate a merger transaction in the near future would result in the Board being replaced by the Issuer's owners, particularly in light of the Board's ownership of virtually zero shares of the Issuer.

On Friday, Mr. Chapman got his wish with Thoma Cressey Bravo's renewed offer. He's formally endorsed the proposal in a press release, but I wonder whether there isn't some lingering bitterness over sweet deals priced into the agreement.

For example, according to the 8-K, Chief Financial Officer Michael Shahbazian, who Mr. Chapman accused of mismanagement in an expletive-filled exchange chronicled in the 13-D, is to receive a $100,000 transaction bonus following the merger.

But that's a relatively minor point in a deal that's worth roughly $186 million. More important are Chapman Capital's actions. On the one hand, the firm is to be applauded for behaving like an owner. On the other, it's chilling to see managers operating under threat.

Either way, the spat over Embarcadero strikes me as unnecessarily nasty. That it became such is either an awful testament to the quality of today's managers (more likely, in my view), or a painful peek into the future of activist investing.

That's all for this week. Think you've found a late filing we Fools should see? Let me know.

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Fool contributor Tim Beyers, who is ranked 881 out of more than 25,000 in our Motley Fool CAPS investor intelligence database, usually favors two scoops of ice cream over the inside scoop. Tim didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on SEC filings, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy may be filed under "F" for fair, or Foolish.


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