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June 1 — The Delaware Chancery Court is seeing a backlash over a decision it issued last year to dissolve a money-making, privately-held company whose owners were in conflict.
Chancellor Andre G. Bouchard ruled in August 2015 that a court-appointed custodian should sell TransPerfect Global Inc. because its two co-owners, Elizabeth Elting and Philip Shawe, had become so deadlocked they were harming the company (34 CARE, 8/21/15).
Now a group of about 600 TransPerfect employees is fighting to stop the sale of the New York-based company, saying the judge's ruling is a “stunning act of governmental overreach” that sets a dangerous precedent for any company incorporated in Delaware.
Calling itself “Citizens for a Pro-Business Delaware,” the group said May 23 it had launched a “grassroots campaign” of radio spots, newspaper ads and 10,000 direct mailings that urge Delaware residents to contact the governor's office and protest the sale. The group also said it planned to push legislation to change Delaware law.
The effort is not likely to go very far, chancery court watchers told Bloomberg BNA.
“For what it's worth, I would be shocked and surprised if Citizens for a Pro-Business Delaware isn't an astroturf group and the alleged employees aren't just fronts,” Ted Gavin, a corporate recovery specialist and managing director of Gavin/Solmonese in Wilmington, Del., told Bloomberg BNA. “There isn't a more pro-business state than Delaware.”
The employee backlash is the most recent development in a long-running feud between Elting and Shawe, ex-lovers who founded the company in 1992 while they were still in college. The company grew to become one of the world's leaders in translation services, with net revenues topping $505 million in 2015, according to company reports. Elting and Shawe run the company as co-chief executive officers, serve as the company's only board members, and each controls 50 percent of the company stock. (Shawe actually owns 49 percent of the company's stock, but his mother owns the other 1 percent and consistently sides with him in disputes, court records show.)
Elting and Shawe's ability to manage the company together broke down in 2011, and since then “has devolved into one of complete dysfunction,” Bouchard wrote in his 104-page opinion in August. “Shawe and Elting need to be separated from each other in the management of the Company for its own good.”
In February, the court-appointed custodian in the case, Robert B. Pincus, filed a confidential proposed plan of sale which has yet to be finalized, court documents show.
Shawe has offered $300 million to buy out Elting, who hasn't made a counter-offer or been willing to negotiate, Shawe's attorney, Martin Russo of New York law firm Gusrae Kaplan Nusbaum PLLC, told Bloomberg BNA in an e-mail June 1.
A group of employees also has made a $170 million offer to purchase Elting's shares, Russo said.
Citizens for a Pro-Business Delaware members signed a letter filed with the court April 27, pleading with Chancellor Bouchard to “not dissolve or force the sale of this profitable and thriving company.”
“Should TransPerfect be forced to sell away from all of its founders, a new entity would not be as inspired or as deeply connected,” the letter said. “Jobs will be lost, replaced, good people will be let go, and our core will likely be changed at a fundamental level.”
The company is aware that “certain groups of employees” have tried to influence the outcome of the process, Joel Mostrom, TransPerfect's corporate development officer, told Bloomberg BNA May 31. Mostrom said those effort “are a distraction to the business” and “we're taking actions to curtail those efforts” by talking with employees to address their concerns.
The court is expected to issue an order “shortly” about whether there is going to be a sale process, Mostrom said. The order would be subject to appeal, he added.
A spokesman for Citizens for a Pro-Business Delaware told Bloomberg BNA that group members are willing to “make a significant investment” in the effort to ensure the company “remains whole.” The group has hired Patrick Allen, a Delaware-based lobbyist who is reaching out to the governor's office and state legislators, and several meetings have been scheduled, the spokesman said.
The group would not say how much it planned to spend on the campaign or whom it had met. The group’s effort is funded completely by the members themselves and is not funded at all by Elting or Shawe, the spokesman said.
The group has not contacted the House Republican leaders, state Reps. Deborah Hudson and Danny Short, Joe Fulgham, a spokesman for the Delaware House of Representatives' minority caucus, told Bloomberg BNA June 1. The employees did reach out to one House member “but the contact was only preliminary,” Fulgham said.
Drew Volturo, communications director for the Delaware House Democratic Caucus, told Bloomberg BNA on May 31 that he wasn't aware of any meetings scheduled with Democratic House members, but he could not say for sure.
So far the group hasn't contacted Delaware Gov. Jack Markell, Jason Miller, a spokesman for the governor's office, told Bloomberg BNA May 31. He added the governor “has confidence in the Delaware courts, which are highly respected for their fairness and their expertise” in resolving business disputes.
The 600 employees who are fighting the sale of the company are selling themselves short, according to Gavin, the corporate recovery specialist in Wilmington, who has 20 years of experience working with distressed companies.
“If I'm an employee of this company, and the facts before the court are true, I don't see why they wouldn't want more stable ownership,” Gavin told Bloomberg BNA in a phone call May 31. After all, he added, the success of the company is built on the employees, “not the owners who fight all the time.”
Gavin said he doubts the judge's ruling will have any impact on any Delaware-incorporated company besides TransPerfect. “There are chancery court decisions that shake the ground under the entire restructuring community in Wilmington,” he said. “This is not one of them.”
The ruling itself also isn't unusual given that the two owners were at loggerheads, Gavin said. The chancery court's ability to turn a company over to a custodian “is supposed to be the stick that's waved at company owners” to encourage them to put the company's interests ahead of their own. The owners created this problem by never appointing an independent board or working out a way to solve management disputes, he said. “What are you supposed to do? A company to be viable has to have corporate governance.”
A former chancery court chancellor agreed that nothing in the ruling should alarm Delaware businesses.
William Allen, who served for 12 years as a chancellor and is now the Nusbaum Professor of Law and Business at New York University's law school, said the employees don't seem to understand what will happen when the company is sold.
“A profitable business that will be sold and dissolved most likely does not mean any employees will lose their jobs,” he told Bloomberg BNA in an e-mail May 25. The sale will mean a transfer of ownership, not a destruction of the business.
“Indeed this is so obvious that one suspects that those behind the organizing effort actually are motivated to somehow acquire control of the business themselves and would prefer something other than a public sale,” Allen said. “In all events the idea that this decision is a government overreach is silly.”
The problem was brought to court by the owners of the business themselves, and the court has solved the problem in a way that harms neither the owners nor the employees, Allen said.
“Is it unusual? Yes, because it is rare of businesses to be owned in this way with no provision for deadlock and for parties to be unable to solve their own disagreements,” he said. “Rare but not unprecedented. How this could be construed as overreaching is beyond me.”
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