Thursday, June 4, 2009

Entrust Shareholders Vote on a Takeover

When you hold shares in a company, you get the chance to vote on issues that come up. Most of the time the results of these votes are expected to be a landslide, but occasionally the outcome is in doubt. This is the case for a former employer of mine.

On June 8 shareholders will vote on whether to accept an offer from Thoma Bravo to buy Entrust for $1.85 per share. The curious thing is that Entrust closed at $1.92 per share on June 3.

Shareholders are probably hoping for a better offer, or they believe the takeover will be voted down. The more interesting question to me is:

Why would anyone vote to approve this takeover?

It’s obviously better for a shareholder to sell shares for $1.92 now rather than approve the takeover and wait to receive $1.85. This reasoning makes sense for small shareholders who can sell without driving the price below $1.85.

It’s possible that shareholders with large blocks of shares might prefer the takeover because they can’t sell their shares without driving the average price below $1.85. However, it still makes sense for these shareholders to be selling shares slowly to get the higher price for some of them.

A minor complication is that a large shareholder who wants the takeover vote to pass wouldn’t want to sell shares to someone who will vote against the takeover. However, voting rights go to shareholders of record as of May 11. So, selling shares after May 11 allows the shareholder to retain voting rights while still collecting a higher price than $1.85.

Another complication is that management own shares as well, and they may vote for the takeover because they see better conditions for their jobs, or they may have struck private deals as part of the takeover that delivers them additional money.

I don’t know whether the takeover will be approved, but after receiving a third reminder to vote my shares, I’m thinking the vote may be close.


  1. I guess your vote would be against, since you don't want to trigger those investment taxes if you are required to tender the shares?

  2. Gene: Yes, that's right. With this crazy tax rule, I'd just sell the shares for the 7-cent premium.

  3. Or, for those big shareholders like me who have 60 shares, the commission for selling on the market exceeds the 7 cents per share difference, so I'll wait for the cash on buyout. ... though sometimes brokers take pity and sell these Tech bubble remnants for no commission if you ask. 98% loss and counting.

  4. Canadian Investor: If your loss is 98% rounded to the nearest percent, then you must have paid between $77 and $128 per share. Ouch! At least I only paid a couple of bucks per share. The trouble is that I'll be declaring a lot more than this in phantom income if the takeover is approved.