NetSpend and Total System Services amended the terms of their proposed acquisition to settle a pair of shareholder lawsuits and allow a twice-delayed vote on the deal to proceed later this month.
The lawsuit settlement delays a vote by NetSpend stockholders on whether to approve the acquisition until June 18. If NetSpend receives a better offer from another potential acquirer, the new terms will make it easier for the prepaid card marketer to accept a superior bid.
The termination fee that NetSpend would have to pay TSYS was lowered, to $44 million from $52.6 million, and the notice period that the payment processor would have to match a competing proposal was reduced, to three days from five.
If the acquisition is terminated because NetSpend shareholders dont approve the deal, the amended agreement reduces the amount of time TSYS can claim a termination fee. Also, TSYS waived a provision of the proposal that allowed it to delay consummation of the deal for up to 12 business days after all closing conditions are met.
The changes to the acquisition terms are part of a proposed settlement of two lawsuits filed by NetSpend shareholders in Delaware and Texas. The lawsuits name both NetSpend and TSYS and challenge the value of the proposed $1.4 billion cash transaction, causing delays on a vote on its approval by NetSpend stockholders.
A special meeting of NetSpend stockholders to vote on the TSYS acquisition was originally scheduled for May 22, but was delayed until May 31. The second meeting was adjourned without a vote on the acquisition.
While the Company and the other defendants believe that each of the Actions is without merit, in an effort to minimize the cost and expense of any litigation the defendants reached an agreement in principle with the plaintiffs regarding settlement, NetSpend said in a regulatory filing with the Securities and Exchange Commission.
The settlement covers both lawsuits and still must be approved by the judge presiding over the Delaware case. That judge previously denied the shareholders' motion for a temporary injunction to block the transaction from proceeding.
The Plaintiff has demonstrated that a reasonable likelihood exists that the sales process undertaken by the NetSpend Board was not designed to produce the best price for the stockholders, Delaware Vice Chancellor Sam Glasscock III wrote in a May 21 opinion.
However, because the injunction requested presents a possibility that the stockholders will lose their chance to receive a substantial premium over market for their shares I find that the Plaintiff has failed to demonstrate that the equities of the matter favor injunctive relief, the opinion adds.
TSYS spokesperson Cyle Mims said the settlement does not have to be finalized before the June 18 shareholder vote, adding that the nearly month-long delay will not affect TSYSs plans to close the deal by mid-year. A spokesperson from NetSpend declined to comment.
Once complete, the acquisition will provide TSYS' issuer clients with an option for offering general purpose reloadable cards. The deal should also let TSYS' merchant clients offer reloadable payroll cards to their employees.