Sunair Services and George Costanza: Negotiating Hard for Less Money
Download Massey / Sunair Services Purchase Agreement
This deal reminds me of the Seinfeld episode when George and Jerry were trying to sell their sitcom pilot to NBC and George took control of the negotiation process. George began by telling the NBC executive who championed their show that the network’s offer for the pilot episode was far too small and that he and Jerry have agreed to pass. Only to come back in a matter of days and beg for whatever NBC would pay.
In the same vein, Sunair passed on Massey’s original offer of $3.00 per share, only to come back less than 9 months later to accept $2.75 per share. In a letter dated 23 January 2009, Massey Services withdrew its offer to acquire Sunair Services because, “The Board of Directors [of Sunair] and its representatives have communicated to us that instead of proceeding to negotiate definitive agreements with Massey, the Board of Directors has now chosen, months after our initial offer, to begin an alternative sale process. As a result of this response and Sunair’s further delay, Massey is hereby withdrawing its offer.”
Fast forward about 9 months, Sunair is finally under a purchase agreement with Massey, and wouldn’t you know, for less than the original offer. On the surface, it looks like Massy is simply paying about $3.3 million less for Sunair, based on the decline of $0.25 per share. However, if you take a deeper look at the financial statements, you’ll see that Sunair’s long-term debt has decreased as well, further decreasing the revised purchase price downward by millions of dollars.
If I were a Sunair shareholder, I would be asking the very same questions that Jerry asked George after he inked the new deal with NBC:
JERRY: Lemme see if I understand this. In other words, you held out
for… less money?
GEORGE: I was wrong, you were right.
JERRY: You know, the basic idea of negotiation, as I understand it, is
to get your price to go up.
GEORGE: You’re smart, I’m dumb.
JERRY: You know, this is how they negotiate in the bizarro world.
This is one of the best examples that I can think of that a bird in hand is often worth two in the bush. Wise management will take note from this folly that it’s extremely difficult, if not impossible, to come back and get the same or better price from an acquirer after you’ve broken off negotiations in search of a better deal. Especially, when your revenue is headed in the wrong direction, as was the case with Sunair. Obviously, Sunair’s board of directors missed the Seinfeld show the day they went over negotiation tactics.
While the deal is still far from closed, it will be interesting to see if some very angry shareholders don’t try to stop this one in its tracks. Apparently the law firm, Levi & Korsinsky, is now investigating Sunair’s conduct for breach of fiduciary duty (i.e., selling the company to Massey for less money, when they knew, or should have known that no acquirer on earth would have paid more than what Massey offered in the first place).
In the meantime, for those of you who think that a pest control company should sell for 2 times annual sales, take note that Massey is paying an aggregate total of $50.8 million for a company that had annual sales of $52.6 million as of 9/30/09, and even that is a rich price for Sunair, whose earnings have been in the gutter the last few years.
Lastly, for those of you interested in rolling up your sleeves, the final copy of the purchase agreement is available here:
Download Massey / Sunair Services Purchase Agreement
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