LOS ANGELES/BOULDER, Colo.—In a surprise announcement, Boulder, Colorado-based New Frontier Media has announced a "definitive agreement to be acquired by LFP Broadcasting, LLC, an affiliate of L.F.P., Inc., the company founded and headed up by Larry Flynt, for $2.02 per common share in cash up front, or approximately $33 million, plus a contingent cash payment right for each common share."
The news is a surprise because the special committee formed earlier this year by New Frontier's board of directors to assess ways to maximize shareholder value, including the consideration of two unsolicited bids to purchase the company—one by a disgruntled major shareholder of the company, Longkloof Limited, and the other by adult powerhouse Manwin— had not indicated interest by LFP or any ongoing negotiations with the privately owned company.
New Frontier is currently publicly traded, but if the transaction is approved, "New Frontier Media’s common stock would no longer be publicly-owned or -traded on the NASDAQ market." According to LFP, the Beverly Hills-based company has been in discussions with New Frontier on and off for the last two years, and restarted negotiations in earnest in March of this year.
"The announcement follows 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," stated New Frontier. "Earlier this year, after receiving unsolicited expressions of interest, New Frontier Media formed a special committee and retained financial and legal advisors to evaluate strategic and financial alternatives. After a thorough assessment, the special committee unanimously recommended and the Board of Directors unanimously approved the agreement. The Board of Directors unanimously recommends that New Frontier Media’s shareholders tender their shares in the tender offer."
The deal, should it be approved, "represents approximately a 79 percent premium to New Frontier Media’s closing stock price on March 8, 2012, the day before New Frontier Media received a publicly-announced unsolicited acquisition proposal [by Longkloof.]. The acquisition is expected to close during the fourth quarter of 2012."
The companies outlined a two-step merger process in the announcement issued today:
Under the terms of the agreement, an affiliate of LFP Broadcasting will commence a cash tender offer for all issued and outstanding shares of New Frontier Media common stock at $2.02 per share, without interest. New Frontier Media shareholders may also be entitled to receive additional contingent cash payments, not to exceed $0.06 per common share, tied to the extent to which New Frontier Media’s available cash balance at the closing of the tender offer, less unpaid transaction expenses, exceeds $11,514,000.
The merger agreement requires that the tender offer commence within 10 business days of October 15, 2012. The tender offer will expire at midnight Eastern Time on the 20th business day following and including the commencement date, unless extended in accordance with the terms of the merger agreement and the applicable rules and regulations of the U.S. Securities and Exchange Commission (SEC). The consummation of the tender offer is subject to the satisfaction or waiver of certain conditions, including: (i) a majority of outstanding New Frontier Media shares on a fully diluted basis having been tendered into the offer and not validly withdrawn, (ii) there not having been a material adverse change with respect to New Frontier Media, (iii) New Frontier Media having not less than $11,514,000 in cash, and (iv) other customary conditions. The tender offer is not subject to a financing condition.
The tender offer, if successful, will be followed by a second-step merger in which any shares of New Frontier Media not tendered into the offer will be converted into the right to receive the same per share consideration paid to New Frontier Media shareholders in the tender offer, subject to shareholders’ dissenters’ rights under Colorado law. As a result of the transaction, New Frontier Media’s common stock would no longer be publicly-owned or traded on the NASDAQ market. Further details will be provided in filings with the SEC.
The New Frontier Media Board of Directors issued the following statement: “This announcement represents a very positive outcome for our shareholders, who will receive complete liquidity for their shares at a very significant premium. We also believe that 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.”
LFP President Michael H. Klein commented, "The acquisition of New Frontier Media fits perfectly with our strategic plan for the growth of our company. The addition of these assets to our portfolio strengthens us significantly moving forward.”
Contacted by AVN, Klein added, "We have had discussions with New Frontier about an acquisition of them on and off for the past two years. Our discussions resumed again back in March of this year."
Asked why the negotiations between the two companies had been kept secret, he said, "We didn’t feel the need to make any of our discussions on this acquisition or any other acquisitions that we have looked at in the past or currently are looking at public news. All such discussions and negotiations are private conversations between the parties and something we feel only needs to be announced if a deal actually transpires."