Probably LEND will file a lawsuit first thing Monday morning. Accredited Lenders, Lone Star Deal Off August 10, 2007 6:12 PM EST Posted by Thomas Catino So much for speculation. Out tonight is a filing from Lone Star informing Accredited Home Lenders (NASDAQ: LEND) that in light of the drastic deterioration in the financial and operational condition of the company, among other things, as of today, the company would fail to satisfy the conditions to the closing of the tender offer. Accordingly, Lone Star does not expect to be accepting Accredited shares tendered at of the end of the current offer period ending on August 14. As of 6:00 PM EST, the stock is surprisingly only lower by $.15, or 1.74% to $8.75, but that is sure to change quickly as the news gets around. With the deal dead, the "balls of steel" trade is officially dead as well.
This is the legal arbitrage of the decade and has certainly attracted my intellectual curiosity. There was a small chance that LS would have gone forward. That disappeared on Fri. evening with the LS SEC filing. There is still a small (even smaller) chance that LS would back down and accept the tender tonight. So just in case, the proper cause of action is to tender. (Why? Bec if the tender does get accepted, the merger won't close for several wks waiting for Wan settlement to be approved by the court. And also to make sure the 50% is in hand to give LEND standing to sue but between Farallon, Silver Point, etc. they will certainly have the 50%.) The final outcome is going to rest upon the Chancery Court of Delaware, whether to compel specific performance or not. The major factors favoring LEND are: - the material adverse effect qualifications are pretty damn tight - the Chancery Court is available bec the purchaser is a Delaware entity (I'm sure by design). The last one is important bec the Chancery Court has experience in this matters but moreover moves quickly. It only hears a limited range of cases in equity and sits without a jury. It won't take 1+ year if the case were in a typical federal district court (which it could have been if both entities were note Delaware). IBP v. Tyson was another attempted merger walk-away, and order compelling specific performance was issued by the court roughly 2.5 months after start of dispute. Stipulations (waiving appeal, etc) and final tender about 2 wks after that. We will see if the court maintains its speed in this case for working against LEND is time and capital drain. Oh, other than announcing the % tendered or if LS decides to settle, I would expect LS to take the full 20 days before filing an answer, so, we will not be better able to judge whether LS has any leg on which to stand until then.