GAIN Capital Adopts Stockholder Rights Plan – Board Looking for More Money?

About now is the time we can start speculating whether Gain Capital’s management is interested in selling out to FXCM.

About now is the time we can start speculating whether Gain Capital’s management is interested in selling out to FXCM. Following the advances from FXCM, Gain announced that they are implementing a Shareholder Rights Plan, better known as a ‘Poison Pill’. Under the terms of the plan, Gain will provide shareholders rights that in the event of an individual or group purchasing 15% could be trans to purchase new preferred shares. The goal of the plan is to create a mechanism that dilutes Gain’s shares in the event that 15% or more of the company has been purchased by one entity. Through the poison pill, the buyers shares would become less valuable due to the increase of shares that is made available to the other 85% of shareholders.

Drew Niv, CEO FXCM
Drew Niv, CEO FXCM

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With FXCM taking their bid directly to shareholders for approval, the poison pill is viewed as a mechanism to put the Board of Directors in charge of the negotiations. With the rights plan adopted, Gain’s management can now either press FXCM for a higher bid in-lieu of removing the poison pill, or keep the rights program and deflect FXCM’s takeover for the foreseeable future. As written in earlier posts, it is believed that FXCM and Gain’s management have spoken in the past about a deal. Therefore, the current ‘unsolicited’ takeover could be the sum of FXCM being rebuffed on multiple occasions and now working to gain shareholder support. Even with a poison pill, supporting shareholders could pressure Gain to get a deal done. Alternatively, through their prior speaking, FXCM is aware of what price would be needed to consummate a merger and they were aware that Gain would commence with a rights plan. Thereby the effects of an eventual poison pill were factored into their bidding.

To provide some prospective on a possible Gain and FXCM prior conversations, the topic was brought up by Sandler O’Neal’s Rich Repetto during yesterday’s Conference Call.

Repetto – So, I guess my question Drew is on the background of how you decide to go about the letter to the Board and make it public so it would appear that – where there are overtures and discussions with Gain management prior and how long has this been going on? I guess and has – what has did you see as sort of the obstacles in the past?
Niv – Unfortunately Rich, there’s a not a lot that I can answer on that question. I mean if this transaction goes through as we hope, we’re going obviously include all the background details of what of what occurred previously, any history that there may have been. But obviously, we did this publicly to just avoid any sort of issues and just communicate directly to the shareholders, not just to Gain shareholders, but even just to FXCM shareholders and sort of end the – sort of the speculation has been around, this proposed transaction for years and years.
Repetto – Okay, but obviously, I guess we’d assume that you try direct communications privately prior as well I would assume?
Niv – Yeah. I can’t comment on that

Seems to indicate that yes, there were previous back channel discussions.  The question now though is just how deep those conversations got. Ultimately, based on FXCM’s reaction and if any large shareholders comment on the deal, we should have a better idea of the likelihood of the deal taking place.

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GAIN Capital’s Board of Directors Adopts Stockholder Rights Plan
-Plan provides Board opportunity to carefully evaluate FXCM proposal and consider alternatives to maximize shareholder value-

BEDMINSTER, N.J., April 9, 2013 /PRNewswire/ — GAIN Capital Holdings, Inc. (NYSE: GCAP, “the Company”) announced today that its Board of Directors has adopted a stockholder rights plan. The rights plan is designed to reduce the likelihood that a potential acquirer would gain control of the Company by open market accumulation or other tactics without paying an appropriate premium for all of the company’s shares.

The stockholder rights plan allows the Board to fully consider and evaluate an unsolicited proposal and provides an appropriate opportunity to consider alternatives to maximize stockholder value.

Under the plan, Rights will be distributed as a dividend at the rate of one Right for each share of common stock of the company held by stockholders of record at the close of business on April 22, 2013. Each Right will entitle stockholders to buy, upon occurrence of certain events, one one-hundredth of a share of a new series of participating preferred stock at an exercise price of $17.00.

The Rights generally will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the company’s common stock, or commences a tender or exchange offer that, upon consummation, would result in a person or group owning 15% or more of the company’s common stock, subject to certain exceptions.

Under certain circumstances the new Rights are redeemable at a price of $0.01 per Right. Unless earlier exchanged, redeemed, amended or exercised, the Rights will expire on April 9, 2016.
Details of the rights plan, including a copy of the rights plan, will be filed with the SEC and will be accessible via the EDGAR database on the SEC’s website at www.sec.gov.

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