The program allows shareholders to purchase reduced priced shares in the event that a hostile bid is made or an individual or group’s ownership of the firm’s float crosses above 10%. The plan was created to dilute a potential buyer’s stake with the issuance of additional shares.
Explaining the rationale for the rights program, FXCM stated in its public statement, “The Company’s Board of Directors is committed to acting in the best interests of all of its stockholders. The Rights Plan is intended to enable all of the Company’s stockholders to realize the full value of their investment in the Company. It is also designed to reduce the likelihood that any person or group would gain control of the Company by open market accumulation or other coercive takeover tactics without paying a control premium for all shares.”
With shares trading around $2 a share since revealing that it had absorbed $225 million in client negative losses, and at least 40% having been written off this week, the firm has become a takeover target. The vulnerability to an outside buyer became greater after the broker announced that it would be seeking to sell non-core assets to cover portions of its $278 million emergency financing the firm received from Leucadia Financial Corporation.
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With their assets having presumably already been reviewed by outside parties, it can be assumed that the broker may also be interested in an outright offer for the firm.
This isn’t the first time that FXCM Inc (NYSE:FXCM) has been involved with a poison pill, as a similar shareholder rights plan was created when the broker made an attempt to acquire GAIN Capital in 2013.
The difference this time around is that they are the potential target, unlike in the previous episode with GAIN when that broker launched the poison pill to thwart FXCM’s attempts.
FXCM Inc (NYSE:FXCM) stated, “The Rights Plan is not intended to deter offers that are fair and otherwise in the best interests of the Company’s stockholders.” As such, it appears that the firm is carefully listening to potential bidders, but is acting proactively to possibly thwart a hostile bid that they believe is eminent.