BOULDER, CO—Nasdaq-traded New Frontier Media (NOOF) is the target of a takeover bid by a well-heeled investor extremely dissatisfied with the company's performance and more than a little disappointed with its board of directors. A letter sent March 9 by majority shareholder Longkloof Limited informed New Frontier of its intent to acquire all outstanding shares of NOOF it did not already own. New Frontier acknowledged receipt of the "unsolicited, conditional acquisition proposal" in an 8K filing and press release issued yesterday. The cash deal would be worth almost $19 million.
The Longkloof letter is addressed to the board and comes right to the point, characterizing its action as a last resort. "We own approximately 15% of the outstanding shares of New Frontier Media, Inc.," it begins, "and have attempted numerous times over the past few weeks to engage in meaningful discussions with you regarding our interest in acquiring NOOF. Given your continued unwillingness to engage in any constructive dialogue with us, we believe expeditious action is necessary to protect the stockholders' interest in NOOF.
"As a result," it continues, "subject to a satisfactory due diligence review and execution of definitive documents, we hereby offer to acquire all of the outstanding shares of common stock of NOOF not beneficially owned by us at a price of $1.35 per share in cash." The offer is not contingent upon financing, said the company, which added that—in slight contrast to New Frontier's "conditional" interpretation of the offer—it anticipates "limited conditions to closing."
Longkloof, an investment holding fund based in the town of St. Helier on Jersey, the largest of the Channel Islands in the English Channel, is a subsidiary of Hosken Consolidated Investments Ltd., a portfolio-rich South African investment firm whose founder and executive chairman, Marcel Golding, is also Director of Tsogo Sun Holdings, a South African gaming and entertainment company that operates several casinos.
The letter sent by Longkloof to New Frontier not only indicates its takeover intentions, it takes the opportunity to publicly berate the board for what it calls its "unfettered self-interest," and further declaims, "We are extremely concerned about the capabilities and behavior of NOOF's current Board. We do not believe the current Board is capable or willing to undertake the actions necessary to enable NOOF to compete in the future, as the track record established by the current Board over the past several years has been dismal."
Particularly irked that New Frontier's stock has plummeted over the past five years from "above $9.00 per share to its current price of $1.13," Longkloof railed that "the current Board is more focused on maintaining its excessive director fees and engaging in related party transactions, rather than running the Company in the best interest of the stockholders."
The New Frontier press release declines to address those or any of the more specific allegations contained in the letter, preferring to state simply, "The Board of Directors of New Frontier Media has formed a Special Committee of independent directors to review and carefully evaluate the proposal received from Longkloof with its financial and legal advisors and determine the appropriate response to the proposal. The Special Committee plans to evaluate the proposal in a timely manner, but no definitive time frame has been determined. The Special Committee and management have indicated that their review of the proposal will be conducted in a manner that will minimize any disruptions to New Frontier Media's business operations."
With a clear eye on the calendar, the Longkloof letter adds a final incentive, stating, "While we hope that the NOOF Board actively and thoughtfully evaluates our proposal and then allows stockholders, and not themselves, to decide whether to sell the Company at a substantial premium in an all cash transaction, we note the upcoming deadline for delivering notice to the NOOF Board regarding the intention to make proposals, including to nominate individuals for election as directors, at the 2012 annual meeting of stockholders.
"At this time," it continues, "we are considering all of our other options in light of such deadline, including whether the recently renewed poison pill should be put to a stockholder vote and whether to propose an alternative slate of four Directors to replace Alan Isaacman, Melissa Hubbard, Hiram Woo and Walter Timoshenko for stockholders to consider."