On several occasions in the past, members of The Motley Fool editorial staff have taken FTD
This is fairly common practice during mergers, but it's not necessarily shareholder-friendly. What was particularly distasteful about this transaction was the captive nature of it: FTD, then named IOS Brands, owned more than 80% of the common stock of FTD.com, so the chances of a failure to garner sufficient shareholder approval of the deal was, shall we say, minimal.
At the time, Zeke Ashton blistered management, saying that its rationale for doing the deal was, at best, suspect. Why would a company turning in dynamite free cash flow growth for six consecutive quarters suddenly accede to being purchased by a lumbering slow grower? Soenen said they wanted to increase trading volume and analyst coverage of the stock, and felt they needed to be a larger company to succeed. Brother, please.
Lawsuits ensued, and late this past year a fairness hearing came back in favor of the shareholders -- FTD.com had been sold too cheaply. Would FTD.com's management have to return their "success fees?" No, Soenen had eased out of the company earlier in 2003. According to Robert Norton, FTD's CEO, the company was counting on insurance to take care of the damages. To date the insurance companies have rejected the claims, refusing to pay.
Zeke also noted in 2002 that he was continuing to hold on to the stock, and for one reason -- it was still dirt cheap. It just goes to show that sometimes even the most self-interested, distasteful management can happen onto a situation where they can succeed. The stock has essentially doubled in the last year and a half. We had continued to cover FTD in TMF Select, the newsletter predecessor to Hidden Gems. Frankly, we were surprised at the company's ability to attract new investors.
So, when I mentioned FTD in a column last week, a reader sent in a note to see if I was aware of the latest of FTD management's machinations: In October, FTD agreed to be taken over by a financial company, Leonard Green & Partners, for $24.85 in cash, once again at a premium to market price of zero. Norton, as part of the deal, had to invest money into the new holding company for FTD. He'll continue to profit, but outside shareholders will not. That's just plain awful.
Both of these actions, though, were masked in something unmistakable -- FTD's shares skyrocketed in the interim. While shareholders have to look at what profits might have been had they been allowed to continue to profit from this strong franchise, they also might want to thank their lucky stars. They're going to cash in with positive gains. Given the choices made by management, that's about as good as it gets.
