UPFC - Lawndale AGAINST proposed low-ball INSIDER buyout of United PanAm Financial

On December 28, 2010, United PanAm Financial Corp. (“UPFC”) ([PINK:UPFC.PK) issued a press release publicly announcing it had entered into a merger agreement with UPFC’s Chairman Guillermo Bron, its management and private equity firm Pine Brook Capital Partners to squeeze out all other UPFC shareholders for $7.05/share, a price well below UPFC’s book value/share.  However, it was not until late February 1, 2011 that we were able to obtain a proxy for the February 24, 2011 Special Meeting called to approve this transaction. We have now been successful in getting a URL link to the proxy on Broadridge’s ProxyVote website at https://materials.proxyvote.com/Approved/911301/20110120/NPS_77135.PDF

 for other UPFC shareholders to review. (If the link provided above does not work for you, please let us know and we would be glad to e-mail you a PDF copy of the proxy.) 

Lawndale Capital Management, LLC is currently reviewing the proxy but has read enough to know that Lawndale and its affiliates will be voting its UPFC shares AGAINST the proposed merger and AGAINST adjournment. This vote AGAINST will also preserve our abilty to exercise California Dissenter Rights for court appraisal of the value of our shares, should this “freeze-out” of shareholders succeed.   

While there is supposedly a “majority of the minority” vote requirement in the Merger Agreement, it is important that UPFC shareholders understand a unique feature in the Merger Agreement that diminishes the protections traditionally afforded by such a vote requirement. As part of the terms of this proposed transaction, UPFC Chairman Bron and his insider group demanded and received a tweak in the “majority of the minority” vote requirement language such that a majority of only those votes cast either “for” or “AGAINST” are needed to cram this low-ball transaction through.  Abstention votes or proxies not returned are not counted, and in light of the voting agreement with UPFC directors, abstentions or non-votes facilitates merger approval. This is one of the main reasons why we believe UPFC is trying to expedite a special meeting vote and has dragged its feet toward providing both full disclosure from the proxy statement and actual proxy vote cards to shareholders.    

From our initial review of the UPFC proxy already, we have confirmed our worst suspicions that, without obtaining a pre-signing market check, UPFC entered into an agreement to be sold to a related party and provided the insider buying group costly deal protections, including no-shop restrictions and costly expense reimbursement and termination fees, all of which greatly preclude shareholders from obtaining higher alternative bids. There is even a long 1-year  “tail” on the termination fee that provides a windfall to the buyer if, after shareholders reject the proposed insider sale, UPFC’s enters into a transaction with someone else.  

As early as May 17, 2010 Chairman Bron advised UPFC’s board he was interested in the possibility of taking the company private and planned to look for equity partners, while at the same time chilling the board’s thoughts of maximizing shareholder value via an auction by asserting he wasn’t interested in selling his large but still minority shareholdings to anyone else. 

In July, 2010, UPFC’s board entered into a confidentiality agreement with Chairman Bron’s buyout partner, Pine Brook, allowing them access to non-public information, followed by meetings in August and September with UPFC operating management, again all without the UPFC board evaluating and taking other shareholder value enhancing actions. In fact, despite UPFC shares trading below cash liquidation value, the board (possibly at Bron’s behest) terminated UPFC’s highly accretive stock buyback activities. We understand Chairman Bron was said to specifically instruct UPFC management (who are also to participate in increased equity ownership in privatized UPFC) to cease or greatly reduce investor relations and shareholder communication activities that UPFC investors had been regularly receiving, even in UPFC’s de-registered state. 

For the reasons set forth above, it is imperative for UPFC shareholders to obtain and vote their proxies at this Special Meeting. Don’t let your abstentions or non-votes facilitate a merger that smells like bad fish.  

Andrew Shapiro
President
Lawndale Capital Management, LLC
591 Redwood Highway #2345
Mill Valley, CA 94941
phone- 415-389-VALUE (8258)
e-mail- [email protected] 

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