FXCM Inc., the largest retail foreign-exchange brokerage in the U.S., has adopted a shareholder rights plan with a 10% trigger, with the goal of preventing a potential hostile takeover attempts of the company.
The brokerage company however indicated that the rights plan is not intended to deter offers that are fair and otherwise in the best interests of the company’s shareholders.
FXCM’s “poison pill”
While unveiling its “poison pill” program, the foreign exchange brokerage said the program would facilitate shareholders in purchasing reduced-price shares in the event a hostile bid is made or an individual or group’s ownership in the firm crosses above 10%. The plan was been created to dilute a potential buyer’s stake with the issuance of additional shares.
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Outlining the rationale for its rights program, FXCM said in a 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.”
FXCM’s issuance becomes effective on February 9, 2015 to stockholders who purchase from the company one one-thousandth of a share of preferred stock with par value of $0.01 per share at a price of $11.20.
As reported by ValueWalk, following the Swiss National Bank stunning the markets this month by scrapping its three-year old cap of 1.20 Swiss francs per euro, unprecedented volatility in the euro-Swiss franc pair has been the norm. The volatility hit FXCM leaving it with a negative equity balance of around $225 million and trying to shore up its capital.
FXCM has become a takeover target
FXCM’s shares dropped to around $2 a share after revealing that it had absorbed the $225 million in client negative losses, with at least 40% being written off this week, making the firm a takeover target.
FXCM indicated that it was seeking to sell non-core assets to cover portions of its $278 million emergency financing the firm received from Leucadia Financial Corporation. Though FXCM said that the financing from Leucadia has stabilized it and put it on track to meet its short and long-term obligations, clearly it’s not yet out of the woods.
Considering FXCM’s assets are presumably already being reviewed by outside parties, it is likely the brokerage firm may also be receiving interest for an outright offer for the firm.
Interestingly, in 2013, FXCM was involved in another poison pill situation, when the brokerage firm made an attempt to acquire GAIN Capital. However, the difference this time around is that FXCM is the potential target.
FXCM’s rights plan would flood the market with shares when an investor’s stake exceeds 10%, making it more expensive to acquire a controlling stake. Shares in the firm, which closed Thursday at $2.24, had approached $17 a share earlier this month before the SNB’s move.