Delaware Vice Chancellor Stephen Lamb ordered Metromedia International Group Inc. to hold a shareholder vote on its plan for asset sale.
The deal follows years of lawsuits among its 20% owner, John Kluge, and 18% owner Stuart Subotnick, against minority investors, many of them hedge funds, over the company's failure to hold annual shareholders' meetings or file income statements with the U.S. Securities and Exchange Commission.
Metromedia claimed that since it has been unable to file financial statements for several years due to accounting issues, it can not legally hold a shareholder vote on the sale. Instead, it planned to file for Chapter 11 bankruptcy protection to execute the sale, even though it is not insolvent.
Hedge funds Esopus Creek Value LP and Black Horse Capital, which together hold 8.2% of the over-the-counter traded stock, sued the company and certain directors on Aug. 18 in Delaware to force it to hold a vote on the sale.
According to court documents released on Thursday, Judge Lamb favoured the hedge funds that sued the communications company. He ruled that the proposed sale has "glaring inequities," in that it allows preferred stockholders to vote on the deal but not common shareholders. He also ruled that preferred shareholders would get "excess" payments through the sale compared with those accorded common stockholders. "Metromedia's proposed transactional scheme, though technically within the letter of the law, works a profound inequity upon the company's common stockholders," Lamb ruled.
Metromedia, founded by billionaire media mogul John Kluge, had previously disclosed that it plans to sell its main asset, a 50.1% stake in Magticom, a leading wireless phone provider in the Republic of Georgia, for $480 million. The proposed buyers of Metromedia include Emergent in Salford Georgia, of which Badri Patarkatsishvili is a major client, and Istithmar, described in the company's press release as a "leading alternative investment house in Dubai, United Arab Emirates."
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