The New York Times reports that five independent ACS directors have resigned, after the CEO seems to have demanded their resignations. The resignations appear to hinge on the directors’ objections to the manner in which ACS Founder and Chairman Darwin Deason wanted to buy out ACS. (The NYT article indicates Deason was trying to favor himself by precluding management talks with other potential buyers, among other things.)
 Two points strike me as particularly interesting:
First, the resigning directors allege Cravath acted improperly as both Deason’s counsel in connection with his bid and counsel to corporation in responding to the bid. (The directors said in a letter to Deason “We also find it curious that your counsel in connection with your [purchase] proposal, Cravath, Swaine & Moore, is now serving as the company’s outside counsel.â€Â Cravath’s response to the NYT was “We had no conflict. We represent Mr. Deason, the chairman of the board of directors.â€Â Uhm, what?
Second, Marc Baylin, a portfolio manager with OppenheimerFunds, which holds 7% of the ACS stock, appears to side with Deason, saying the board’s lack of favorable action on Deason’s proposal “has actually lowered the current market value of A.C.S. stock.â€Â My response: So what? What does that tell us about whether Deason’s proposal was the best possible proposal? Almost nothing. A short-term stock drop tells us only a bit about the short-term view of perhaps short-term holders of ACS stock, but those interests do not and should not control the board of directors when responding to an actual control bid.
So, the $50,000 going private transaction question again rears its ugly head, as I ask: When a founder such as Deason starts to make a bid for a firm, when, if at all, is the obligation to actually auction the firm ala Revlon triggered?Â
