Wednesday, August 04, 2010

Another Question about Timing of NBTY Insider Stock Purchases Prior to Announcement of Carlyle Acquisition

In my last blog post about NBTY (NYSE: NTY), I examined the timing of purchases of company stock by directors Michael L. Ashner and Peter J. White just two months before the July 15 announcement that Carlyle Group was acquiring NBTY at about $55 per share in cash. CNBC’s David Faber reported that, “Carlyle approached NBTY with an offer in early May, according to people familiar with the deal.” Both Ashner and White purchased their shares in mid-May at about $34 per share and $35 per share respectively. I wanted to know if “early May” meant “before or after” Michael Ashner and Peter White purchased their NBTY shares.

Now, we have an answer and one more question.

NBTY Preliminary Proxy Statement

Yesterday, NBTY filed a Preliminary Proxy Statement which provided certain details of the events leading up to the announced acquisition of the company by Carlyle:
The board of directors and senior management in the ordinary course of business continually review and assess strategic alternatives available to us to enhance stockholder value. As part of this ongoing process, the board of directors has also periodically considered potential business combination transactions. BofA Merrill Lynch has from time to time, as requested by the Company, assisted the board of directors and senior management in this strategic review process.

From time to time over the last few years, a number of parties, including Carlyle, have approached Scott Rudolph, Chairman and Chief Executive of the Company, Harvey Kamil, President and Chief Financial Officer of the Company, and representatives from BofA Merrill Lynch regarding possible transactions involving the Company. Until the discussions described below, those approaches did not proceed past preliminary conversations and exchanges of limited confidential information.

On or about April 23, 2010, a representative from Carlyle contacted Mr. Kamil and expressed Carlyle’s interest in exploring a potential business combination transaction with the Company. Mr. Kamil subsequently informed Mr. Scott Rudolph of this expression of interest.

Mr. Kamil then had a preliminary discussion with representatives from Carlyle to further clarify and understand Carlyle’s interest. On April 29, 2010, the Company and an affiliate of Carlyle entered into a confidentiality agreement, dated as of April 27, 2010, which was subsequently amended on June 1, 2010. Carlyle was then provided with limited confidential information about the Company.

On May 11, 2010, Mr. Scott Rudolph and Mr. Kamil met with representatives from Carlyle to discuss the Company and gather additional information about Carlyle’s interest.
According to SEC filings, on May 13, 2010, Michael Ashner purchased 5,000 NBTY common shares at a total cost of $171,295 or an average price per share of $34.26. Five days later on May 18, 2010, Peter White purchased 4,000 NBTY common shares at a total cost of $140,398 or an average price per share of $35.10.

The Preliminary Proxy Statement goes on to provide additional details:
On May 21, 2010, the board of directors held a regularly scheduled meeting. Members of senior management and representatives from BofA Merrill Lynch and Sullivan & Cromwell LLP, the Company’s outside legal counsel, which we refer to as Sullivan & Cromwell, participated in this meeting. Mr. Scott Rudolph reviewed with the board of directors the approach by Carlyle to the Company, the execution of a confidentiality agreement with an affiliate of Carlyle and the discussions with and information provided to Carlyle at that time.
As I detailed above, on July 15, 2010, NBTY announced that it was being acquired by the Carlyle Group for $55 per share.

Based on the above timeline, Michael Ashner and Peter White purchased their NBTY stock after the “Company and an affiliate of Carlyle entered into a confidentiality agreement” and “Mr. Scott Rudolph and Mr. Kamil met with representatives from Carlyle to discuss the Company and gather additional information about Carlyle’s interest.” So I have one additional question.

Question

At what point in time did Ashner and White know anything about the discussions with Carlyle and when did they find out about the confidentiality agreement?

Often, such agreements are executed after the board has been notified. In this case, the confidentiality agreement was signed before Ashner and White purchased their NBTY shares.

Written by:

Sam E. Antar

Disclosure:

I am a convicted felon and a former CPA. As the criminal CFO of Crazy Eddie, I helped Eddie Antar and other members of his family mastermind one of the largest securities frauds uncovered during the 1980's. I committed my crimes in cold-blood for fun and profit, and simply because I could.

If it weren't for the efforts of the FBI, SEC, Postal Inspector's Office, US Attorney's Office, and class action plaintiff's lawyers who investigated, prosecuted, and sued me, I would still be the criminal CFO of Crazy Eddie today.

There is a saying, "It takes one to know one." Today, I work very closely with the FBI, IRS, SEC, Justice Department, and other federal and state law enforcement agencies in training them to identify and catch white-collar criminals.

I do not seek or want forgiveness for my vicious crimes from my victims. I plan on frying in hell with other white-collar criminals for a very long time.

Recently, I exposed GAAP violations by Overstock.com (NASDAQ: OSTK) which caused the company to restate its financial reports for the third time in three years. The SEC is now investigating Overstock.com and its CEO Patrick Byrne for securities law violations (Details here, here, and here).

In addition, the SEC is now investigating possible GAAP violations by Bidz.com (NASDAQ: BIDZ) after I alerted them about the company's inventory accounting practices.

I do not own NBTY securities long or short.

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