Delaware Court Decides MHR Investment in Loral Did Not Meet Fairness Standard
[Satellite Today 09-22-08] In a legal dispute over a $300 million investment in Loral Space & Communications Inc. from MHR Fund Management LLC, the Delaware Chancery Court has decided that the investment did not meet the entire fairness standard under Delaware law.
The deal, announced in October 2006 and completed Feb. 27, 2007., was delayed after other shareholders raised opposition. Investment firms Murray Capital Management Inc. and Highland Capital Management LP labeled it as a "sweetheart deal" that would allow a "stealth takeover" of Loral.
The Delaware court ordered that MHR’s preferred shares be converted into 9.5 million non-voting common shares. As a result of the decision, MHR will own 56 percent of Loral’s total equity and 35.5 percent of the voting power, the same level of voting power it had prior to the financing.
Additionally, the court dismissed the action brought by the Loral Skynet noteholders, concluding that the early redemption of Loral Skynet’s 14 percent senior secured cash/PIK notes due 2015 was proper and did not violate the covenant of good faith and fair dealing implied in the indenture governing the notes.
The court ordered the parties to create an implementation plan and present it to the court within 15 days.