PPD - Prepaid Legal Services

[Josh4580]

Pre-Paid Legal Services considers buyout offer
http://finance.yahoo.com/news/PrePaid-Legal-Services-apf-2752175858.html?x=0&.v=1

ADA, Okla. (AP) -- Ada-based Pre-Paid Legal Services Inc. said it's considering a $60-per-share buyout offer from a private equity company.

A news release from Pre-Paid on Monday said only that the potential buyer is a "well-known private equity firm." It said the firm would withdraw its offer if it is identified.

The release said Pre-Paid is also considering other alternatives to improve shareholder value that do not include a sale.

Pre-Paid spokesman George Snyder declined further comment when contacted by phone.

Pre-Paid Legal sells a monthly subscription to a limited package of legal services. Company founder Harland Stonecipher stepped down in April as CEO and president but remains chairman of the board of directors.

In midday trading Pre-Paid Legal stock was up 13 percent, or $7.11 to $63.25.

According to Thomson Reuters, Pre-Paid has just under 10 million shares outstanding, implying a total deal value of about $595.8 million

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Thomas Smith, representing Prescott Investors, own 25% of PPD and sent a letter to the Special Committee

http://www.secinfo.com/d12TC3.r1N7r.htm

I am writing to you on my own behalf and on behalf of Scott J. Vassalluzzo and Steven M. Fischer (the “Investment Managers”), as well as certain investment limited partnerships and other managed accounts (“Managed Accounts") over which Messrs. Vassalluzzo, Fischer and I have voting and/or investment authority.  The Investment Managers and the Managed Accounts are referred to collectively herein as the “Prescott Investors.”  The Prescott Investors beneficially own an aggregate of 2,470,415 shares of common stock of Pre-Paid Legal Services, Inc. (“Pre-Paid”), representing  25.3% of Pre-Paid’s outstanding common stock.  This letter expresses the views of the Prescott Investors as significant shareholders of Pre-Paid.


The Prescott Investors have been shareholders of Pre-Paid for the past 14 years, with our first investment in Pre-Paid tracing back to November 1996.  I served on the Pre-Paid Board of Directors for more than five years, from 2004 through February 2010.  As evidenced by our long-standing relationship with the company, we believe that Pre-Paid is truly a remarkable company, and that Harland Stonecipher, who founded the company in 1968 and devoted his life to its growth, has created a product that is truly one-of-a-kind.  Over the years, Pre-Paid has developed an impressive nationwide and Canadian network of law firms that delivers high quality legal services for a fraction of typical costs.  Through the efforts of a seasoned home office staff in Ada, Oklahoma and a talented independent sales force in the field, Pre-Paid has grown to become one of the largest providers of legal expense plans in the United States with over 1.4 million legal and nearly 800,000 identity theft memberships, more than five times the number that existed when we first invested.


With that background, we commend the Special Committee for taking steps to evaluate strategic alternatives to enhance shareholder value, as noted in Pre-Paid’s press release on October 25, 2010.  We do, however, strongly recommend that the Committee move expeditiously in its evaluation given the current fragility of the financing markets.  We believe that the offer of the unidentified private equity firm that was noted in the company’s press release was appropriate in terms of price, and although the offer has since been withdrawn, we understand that the private equity firm remains interested in pursuing a transaction.  The private equity firm’s offer has the added benefit of allowing Pre-Paid to reduce its exposure to any downward trend in financing markets, as we understand that the potential buyer has completed due diligence, is fully financed and prepared to negotiate a merger agreement immediately.  In addition, we understand that the buyer would maintain Pre-Paid’s headquarters in Ada, OK, which would preserve the company’s strong ties within the local community.

The Prescott Investors will continue to be supportive and constructive shareholders of Pre-Paid, as we have been over the past 14 years.  While we support the Committee’s plan to evaluate all viable strategic alternatives, we caution that time is of the essence and urge due consideration of the existing opportunity for value realization by Pre-Paid’s shareholders.  In order to facilitate a transaction that is in the best interests of shareholders, the Prescott Investors are prepared to either sell all of our Pre-Paid stock or participate in the buyout offer, in either case, on terms that we deem to be appropriate.


We appreciate your consideration of our views and look forward to learning more about the Committee’s efforts

http://www.merger-arbitrage-investing.com/2010/11/risk-arb-pre-paid-legal-services-ppd.html

There are several interesting things to note from this. The first is that the largest holder, and a former board member (who presumably knows the company) is willing to sell a stock at $60/share which was at $67.67/share one month before. The second noteworthy item is that “the offer has since been withdrawn”. Wait, where did they learn that information, and why hasn’t the company disclosed this? Another area of concern is “the potential buyer has completed due diligence, is fully financed and prepared to negotiate a merger agreement immediately”. Recall that the October 25 announcement says that financing is not secured, and now we are told it is. More importantly, call us crazy, but isn’t a withdrawn offer the opposite of standing ready to negotiate an agreement immediately? Too much uncertainty for us right now, though we await the next bit of news.

This company has in the past been accused of having Ponzi-like economics.  The company is currently under an informal investigation by the SEC.  The company has a long history of insider selling concurrent with Company stock buybacks.  Do anyone have any color on this stock, potentially as a short?  Additionally, what do you think of this whole fishy "takeover bid".

[bookie71]

I have followed this company for many years as it is in my old home town.  It seems to always be under some type of investigation by the SEC or someone else. As one of my mid-school teachers pointed out, over half the people in Oklahoma have a criminal in their roots (think True Grit).
All I can say is be very, very careful.

[beerbaron]

I have followed this company for many years as it is in my old home town.  It seems to always be under some type of investigation by the SEC or someone else. As one of my mid-school teachers pointed out, over half the people in Oklahoma have a criminal in their roots (think True Grit).
All I can say is be very, very careful.

Yeah I agree, but nothing was found in all those investigation. I did some research when PPD was trading at 38$ and found it was pretty cheap for a company with a long record of operating profit. Nobody seems to like this business but it still generated lots of cash to reduce the share count by a VAST amount.

There has been lots of critics on their intense share buyback not returning their expected effect. I believe it's a funny way the street has of complaining that the markets are not always efficients.

I did not buy for only one reason. At the way they are making their buyback there would be no more market for those shares in 5-7 years. After those 5-7 years it was likely to be taken private by management, but who would still be there to make sure the small shareholder would not get screwed?

BeerBaron

[mpauls]

There is no doubt this company has wonderful economics.  There are some issues with it however.  Their marketing practice is shady as hell.  They effectively operate a pyramid scheme.  It's strange because the business is actually a pretty good model besides that.  Their internal marketing efforts explicitly target new recruits/members which are sales people (to expand the pyramid)  I don't recall the details, but they spend a lot of time around religious communities.  Management are really scared to talk with investors and they hired a PR guy to handle inquiries of all kinds-but knows very little about the business.  They walk a fine line in terms of violating a few insurance regulations.  It just seems to go on and on and on.  That said, the damn thing was very cheap not too long ago and I know some people who made a lot of money ;p  

[twacowfca]

This thread is very interesting.  I've never been able to understand what little I know about their business model as being sustainable.  There is a fine line between multilevel marketing companies that are barely legal and those that are not.  I would like to learn more about them, but not probably as a potential investment.