New Frontier Media Target of Takeover Bid

Mar 9, 2012 4:45 PM PST

BOULDER, Colo. — The largest shareholder of adult transactional TV service New Frontier Media has offered to acquire the remaining shares it doesn't already own in the company in a cash deal worth about $18.8 million.

The unsolicited offer by investment company Longkloof Ltd. represents a slight premium over the stock's closing price on Friday at $1.32 a share. Longkloof, which owns 15 percent of New Frontier, is offering $1.35 a share for each outstanding share of the Boulder-based company.

Longkloof, a fund based in the Channel Islands in the English Channel, said in a letter on Friday to New Frontier that it has attempted several times to engage in discussions  about acquiring the company and that "expeditious action is necessary" to protect shareholders' interest.

Longkloof also criticized New Frontier's board, calling the company's performance under its leadership over the past several years "dismal."

Sales at New Frontier, which makes most of its revenue distributing adult entertainment movies to cable and satellite TV pay-per-view services, has declined steady since 2007 — from $63.2 million to $48.7 million in 2011. It has faced losses in its past two fiscal years.

"We are extremely concerned about the capabilities and behavior of New Frontier's current board,” the fund said in a letter. "We do not believe the current board is capable or willing to undertake the actions necessary to enable New Frontier to compete in the future, as the track record established by the current board over the past several years has been dismal.

“Under the board’s stewardship, we have watched the company’s stock price decline over the past five years from above $9 per share to its current price ... . Unfortunately, we believe 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.”

Longkloof’s letter said it tried without success to get New Frontier to discuss changes at the company. The letter also said it expects to keep New Frontier senior management in place if its takeover succeeds. It’s not clear whether that includes CEO Michael Weiner.

Late last year, New Frontier extended a provision in its shareholder rights rules that could give the company’s executives the ability to ward off a takeover attempt by issuing newly created shares.

Late Friday, New Frontier's board of directors said it formed a special committee of independent directors to review and evaluate the proposal received from Longkloof with its financial and legal advisors and determine the appropriate response to the proposal.

New Frontier gave no definitive time frame for its response, but Longkloof noted that an upcoming deadline for nominating individuals for election as directors will be a consideration.

"At this time, 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," Longkloof said.

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