The management-led buyout of transportation & supply chain firm EGL (EAGL) is heading towards the surreal. SEC documents filed today disclose a letter sent from CEO James Crane to seven of his top executives in which Crane offers to share his $30 million breakup fee with them in exchange for 50% investments in the LLC that is heading up the buyout.
Seriously….we’re not making this stuff up. You see, Crane, his company, and his board are all being sued by private equity firm Apollo Management LP for essentially fast-tracking the Crane-led privatization effort before Apollo could come in with a better offer. The EGL board approved Crane’s $38/share bid one day before Apollo went public with a $40 offer (subsequently bumped to $41); Apollo has also stated they were denied documents that were requested for proper due diligence on the company.
The Apollo suit also announces its contempt over the $30 million termination fee which is payable to Crane directly should the EGL accept any other buyout offer. There is also a $15 million “expenses” fee that Crane would earn should his deal fall through.
Apollo isn’t the only suing party, as several institutional investors have expressed dismay at Crane and the EGL board over the strange turns this buyout is taking.
News of this letter will probably not have the effect it was written to achieve. Apollo is upset, and rightfully so, at the obvious conflicts of interest within the EGL board and the buyout group. And in the letter, Crane is asking for each executive to pony up 50% of their proceeds from the company sale for investment into Talon Holdings LLC, an entity created all of 2 weeks ago that will end up owning EGL Inc. should they go private.
Apollo has already said they haven’t seen activity this blatant in 20+ years in the buyout business, and that they would not proceed with any buyout offer that included the $30 m fee.
It’s hard to see Crane making it out of this mess with his job. More big shareholders will likely band together to overthrow the entire board, not unlike what we’ve seen recently at Take-Two Interactive (TTWO).
Ryan Barnes
April 6, 2007
Ryan Barnes can be reached at [email protected]; he does not own securities in the companies he covers.
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