New Avid Rights Agreement Will Cause “Substantial Dilution” to Potential Acquirers

Posted by Joe Zaller
Jan 09 2014

Avid Technology said it has entered into a Rites Agreement with Computershare Trust Company acting as Rights Agent. In connection with this, Avid will distribute a dividend of one Right for each outstanding share of its common stock to stockholders of record at the close of business on January 17, 2014.

Each Right entitles the registered holder to purchase from Avid a unit consisting of one ten-thousandth of a share “Series A Preferred Stock” at an exercise price of $40 per Unit, subject to adjustment.

The Rights will initially be attached to all common stock of the company, and will separate when any person or entity accumulates more than 15% of the Avid’s common stock. If/when this occurs, each holder of a Right will thereafter have the right to receive Avid common stock worth two times the exercise price of the Right.

For example, at an exercise price of $40 per Right, each Right not owned by an acquiring person (or by certain related parties) would entitle its holder to purchase $80 worth of Common Stock (or other consideration) for $40.

Avid says “the Rights will not prevent a takeover of the Company. However, the Rights may cause substantial dilution to a person or group that acquires 15% or more of the Common Stock unless the Rights are first redeemed by the Board of Directors of the Company. Nevertheless, the Rights should not interfere with a transaction that is in the best interests of the Company and its stockholders because the Rights can be redeemed on or prior to the close of business on the tenth business day following the Stock Acquisition Date, as defined in the Rights Agreement, before the consummation of such transaction.”

As of January 2, 2014, there were 42,339,117 shares of Common Stock issued (of which 39,081,641 shares were outstanding and 3,257,476 shares were held in treasury) and 3,775,132 shares reserved for issuance pursuant to employee benefit plans. As long as the Rights are attached to the Common Stock, the Company will issue one Right with each new share of Common Stock so that all such shares will have Rights attached.

 

For those who enjoy reading complex financial documents, the entire Rights Agreement can be found here.

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