Should we get involved in SEC/ fiduciary duties investigation?

January 2, 2013 3:30 PM

Should we get involved in SEC/ fiduciary duties investigation?

A family member owns a decent ($100k+) position of Zipcar, whose board announced today that they are being acquired by Avis for $500M = ~$12 per share.

While this is significantly higher than closing price on Monday, it's still way off from where the stock price was earlier. A law firm "specializing" in securities issues immediately announced that they are investigating whether the board acted in the best interest of the share holders. Links to the press release and the law firm are easily found though any search engine.

Should the family member contact the law firm to get more information or is this just bottom feeder with a scam?

posted by anonymous to work & money (8 answers total)

I don't think there is any harm in contacting the law firm to hear what they are proposing.

Don't get into any binding agreements with them, though. Their case is a long shot, though they stand to make a lot of money if they win. So they should only be paid on a win, and be paid as small a percentage of the win as you can possibly manage.

If they demand money up front, or money in the event of not winning the case, then walk. Or if they demand too high of a percentage, walk. Or if the burrito you had for lunch gave you too much gas and you now feel like crap.
posted by b1tr0t at 3:40 PM on January 2

As someone who held a position that was less than "decent" (take off two zero, sometimes three) in four companies that were acquired (KCG being the most recent that I remember, I got in after the crash thinking they'd either bounce back or get bought out, so far, I'm ahead), this has happened every time. IANAFC, but this seems to be pretty common. If you want advice from a FC, you should ask a FC and not metafilter.
posted by Brian Puccio at 3:50 PM on January 2 [2 favorites]

If you want advice from a FC, you should ask a FC and not metafilter.

Agreed. But you can also do things like look up the relevant SEC rules, and the local laws that govern the state where ZIP is incorporated. If you can grok the legal-finance jargon (sometimes easy, sometimes not so easy), you should be able to develop a reasonable intuition as to whether the case is bullshit or not.

I say this as an engineer who has spent the last two weeks double-checking the work of our top-shelf law firm relating to some slightly esoteric entity formation details*. If you have the time, any reasonably intelligent person can do it. If you don't have time, be prepared to pay for advice.

In financial matters, Metafilter is only good for getting guidance about how to come to the right conclusion. You shouldn't form your opinion based entirely on what you read here.

* Sadly, the process is not nearly as Lovcraftian as it sounds.
posted by b1tr0t at 4:02 PM on January 2

it's still way off from where the stock price was earlier

Per this, "earlier" means "May", and its overall trend since the IPO has been "lower". I think the best outcome here is likely to be someone else coming up with a better offer, not some malfeasance claim.

Anyway, there's little harm in contacting the law firm, and I fairly doubt there is much in even joining the lawsuit. I did find it interesting that the firm Brower Piven is not among the 11K US law firms ranked by US News & World Report, which I guess I'd have to consider a red flag. And they also seem to have this as a specialty practice, as in "Law Firm Brower Piven Announces Investigation of..." 3-4 times a month.

But they probably smell a pretty good contingency fee here, so just make sure your relative isn't the one footing it.
posted by dhartung at 5:29 PM on January 2

FYI, pretty much every time there is a large acquisition of a public company, there are certain law firms who will file shareholder suits. It doesn't mean there's necessarily any substance to it. (Doesn't mean there's not, either.) The law firm is likely to get some money out of it if the company pays them to go away. If your relative is curious, they can contact the law firm, but they should not give the law firm any money.
posted by chickenmagazine at 5:43 PM on January 2 [2 favorites]

I came in to say what chickenmagazine said.
posted by anthropomorphic at 6:57 AM on January 3

I'm not an expert in these matters, but Avis did pay a 50% premium on the current price of Zipcar's shares. Yes, the stock's been higher in the past, but Zipcar's stock has been on a steady downward slide in the 2 years since its IPO. 2012 was the first time that the company managed to turn a profit, after 12 years in business.

I guess you might want to talk to a lawyer, but my gut instinct tells me that Avis are the ones who got a rotten deal here.
posted by schmod at 8:18 AM on January 3

my gut instinct tells me that Avis are the ones who got a rotten deal here.

If I'm reading Avis Budget Group's 2011 annual report correctly, they had a net income of $-29 million in 2011, $+54 million in 2010, and $-47 million in 2009. Without reading more of the report, it is entirely possible that Avis is engineering this nearly break-even income level (compare to their consistent net revenue of $5 billion to $6 billion since 2007).

With an net income of less than 1% of net revenue on a good year, this strikes me as a stupidly inefficient business. Or a tremendously efficient business, from the renter's point of view. Only $0.50 of the $50 a day you pay to rent an Avis car is profit. From an investor's perspective, this is a stupid, stupid, stupid business. CAR's stock price has doubled over the last year, so clearly the income number doesn't tell the whole story.

More likely, they are optimizing their taxes. They may absorb the Zipcar business into the greater Avis group while simultaneously writing down as much of the acquisition cost as a loss, amortized over several years, as they possibly can.

If this is the case Avis might even quietly welcome a shareholder suit that drives the acquisition cost up, bizarre as that may seem.
posted by b1tr0t at 12:11 AM on January 4