YNOT – Within hours after New Frontier Media announced its decision to accept an acquisition offer from Larry Flynt’s LFP Inc. empire, the embattled adult distributor’s stock prices rallied and a notorious class-action legal firm announced an investigation of potential misfeasance.
On Monday, New Frontier and LFP issued a joint statement saying the companies had signed an agreement for LFP to acquire New Frontier at $2.02 in cash per common share. The deal represents approximately $33 million up-front, plus a contingent cash payment of no more than 6 cents per common share, or a 79-percent premium over NOOF’s closing price on March 8.
New Frontier, which trades under the symbol NOOF on the NasaqGS, has been locked in a hostile-takeover battle with unsolicited suitor and significant shareholder Longkloof Ltd. since March 9, based in part on loss of share value and threatened expulsion from the public stock market.
In trading before the opening bell on Tuesday, NOOF’s per-share price jumped to $1.97 from Monday’s closing value of $1.30. After the Nasdaq opened on Tuesday, per-share value quickly reached $2 — an increase of 53.85 percent in less than 24 hours — apparently in response to the acquisition announcement. Except for a temporary, and negligible, rise to $2.01, the share value remained stable through Tuesday’s closing.
Even before NOOF’s share value reached its highest point since March 4, 2011, the New York law firm Newman Ferrara LLP — specialists in class-action consumer lawsuits, securities fraud and shareholder litigation — announced it was “investigating potential claims” against New Frontier’s board of directors.
“Newman Ferrara LLP’s investigation concerns whether New Frontier’s board of directors has breached its fiduciary duties by failing to act in the best interests of New Frontier’s shareholders and failing to adequately shop New Frontier before entering into the proposed transaction with LFP,” a prepared statement noted.
The firm appears to be shopping for plaintiffs, as the statement encouraged “concerned investors” to get in touch by phone or email to “discuss this investigation, their rights or potential remedies.”
On Oct. 9, the firm floated a similar investigation of Alliance Financial Corporation, which the previous day had announced its agreement to be acquired by NBT Bancorp Inc.
Newman Ferrara made adult-industry headlines in August, when a federal judge in Dallas dismissed as frivolous its class-action lawsuit claim that online dating giant Match.com LLC deceived and defrauded paying members by failing to police database listings for legitimacy.
The law firm was not specific about why it suspects misfeasance in the New Frontier-LFP agreement, but it may believe NOOF’s per-share price will rise above the LFP’s $2.02 offer before the companies complete the acquisition. The companies expect to consummate their deal before the end of the year.
The acquisition announcement followed what New Frontier characterized as “a comprehensive review of strategic alternatives to maximize shareholder value undertaken by the special committee of independent members of New Frontier Media’s board of directors.” Earlier this year, after receiving unsolicited buyout offers from Longkloof and adult industry conglomerate Manwin, New Frontier formed a special committee and retained financial and legal advisors to evaluate strategic and financial alternatives. After a what the board called “a thorough assessment,” the special committee unanimously recommended and the board of directors unanimously approved shareholders tendering their shares to LFP.
“This announcement represents a very positive outcome for our shareholders, who will receive complete liquidity for their shares at a very significant premium,” the board stated as part of Monday’s announcement. “We also believe this transaction with LFP Broadcasting creates a great opportunity for our organization, cable television partners and customers as two of the premier adult media broadcasting companies join forces.”
The agreement requires LFP to commence a tender offer by Oct. 29. The offer will expire at midnight Eastern Time on the 20th business day following the commencement date — on or about Nov. 27. The entire deal is contingent upon satisfaction of terms and conditions established by the agreement and the U.S. Securities and Exchange Commission. In addition, a majority of New Frontier shareholders must approve the acquisition.
If the deal is consummated, New Frontier will be withdrawn from the public stock markets and become part of a privately held corporation.
