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Off the Table': Battle for Company's Future Escalates to Free Market
Transperfect Global

Off the Table': Battle for Company's Future Escalates to Free Market

Court orders the sale of a privately owned businesses, and corporate America is worried.

What could have initially been dismissed as an ex-lover’s quarrel that escalated into a corporate legal fight in a small state court, now raises red flags for its impact on the nation’s business climate, and more broadly, free market principles.

Phil Shawe, the co-owner of TransPerfect Global, one of the most successful privately held software companies in the country, said his offer to buy out co-owner and ex-fiancé Elizabeth Elting’s shares will be withdrawn if he has to appeal a Delaware judge’s ruling that the company must be auctioned off because of “dysfunction” on the board.

“The company was never and is not currently dysfunctional as it pertains to business performance, growth and operations,” Shawe, who has offered little public comment on the matter, said in an interview.

Shawe’s characterized his $300 million offer for Elting’s shares as “over and above” what she could get on the market.

Transperfect Global

“Not only would a third party buyer refuse to offer her such a large sum but it is very possible that she will receive no offers at all and if she does they will be significantly lower than the offer I am making now, which will be taken off the table if I am forced to file an appeal,” Shawe said.

Delaware Chief Chancellor Andre Bouchard ruled the company should be put up for auction, giving both Shawe and Elting the opportunity to bid, reasoning that this would maximize the company’s value.

Elting’s attorney Phillip S. Kaufman called the ruling “an important victory” for his client, who sued to force the sale.

“We are thrilled with this decision, which is a major victory for Ms. Elting and we look forward to the sales process,” Kaufman told The News Journal, Delaware’s largest newspaper.

The software translation company that Shawe and Elting started in 1992 from a New York University dorm room now has more than $500 million in sales with 4,000 full-time employees in 90 offices. Sales are up by more than 11 percent from last year. SmartCEO Magazine recognized TransPerfect as a winner of the 2016 Future 50 Award. The Ladies Professional Golf Association announced earlier this year that the firm would be the official translation software of the LPGA tour. TransPerfect also gained contracts with giants Walmart and Hewlett-Packard.

More than 600 employees want to buy the company and formed Citizens for a Pro-Business Delaware to push the Delaware state legislature to block the court from forcing a sale.

Two Republicans in the Delaware state legislature have taken up the cause.

State Sen. Colin Bonini proposed a resolution calling for the Delaware State Bar Association to clarify the appropriate legal remedy for resolving any dispute of a profitable Delaware-incorporated company.

“We must protect our profitable companies and ensure that the Chancery Court remains fair and balanced,” Bonini said in a statement. “This resolution is an important step in that effort, and encourages the bar association to look into other possible remedies for this situation.”

State Rep. Michael Ramone is also backing the resolution.

“As a small business owner and member of the House Economic Development Committee, I understand the significance of this case and how important it is for Delaware business,” Ramone said in a statement. “We as state legislators need to recognize the impact this will have on both the company and employees, as well as our reputation as the best place to form a business corporation.”

Here’s why the case could affect the national economy: Delaware is the world’s incorporation capital, with friendly laws on taxes and regulation that make it easy to start a business. More than 50 percent of publicly traded and 65 percent of Fortune 500 companies are incorporated in Delaware. The New York Times reported that 285,000 corporations, including Coca-Cola, American Airlines and JP Morgan Chose list their location at a single address in Wilmington. Thus, much is at stake from Bouchard’s legal precedent of forcing a profitable company to sell.

“The law allows for a judge to impose such a decision when the company is in threat of bankruptcy, insolvency, and is being harmed in substantial ways that effect its viability,” Shawe said. “That the court ruled to sell TransPerfect as a company that by all means is successful, not in trouble and is continuing to grow, should be chilling to other Delaware companies. A board disagreement that does not impact the everyday functioning can now lead to a forced dissolution. Rest assured that other Delaware companies are now looking at this.”

Shawe rejected the notion that with so much animosity, neither co-owner would sell to the other, but he understood, "some people call this a business divorce” and that, “Ms. Elting is clearly treating this like a personal divorce.”

“She is driven entirely by emotion and greed,” he said, later adding, “her lawyers are being driven by the prospect of future billing and her investment banker by the prospect of a larger commission.”

Shawe says he’s not selling, but he sure she will. That’s because – in the end – he wants to keep the company and she wants to sell her shares.

“I have no desire to sell my shares regardless of the price. This is my life's work and I will do everything in my power to continue running the business I truly love,” he said.

He said his 24 years in business, involvement in 20 buyouts and discussions with investment bankers have informed his view that his offer was very generous. So he’s certain she’ll come around.

“Ms. Elting wants to, and as I see it, will eventually come to the realization that my offer is the best offer she will ever receive,” he said. “I believe her position will change when her advisers have determined that it is no longer in their best interest to advise her otherwise.”

But Elting’s team previously called the $300 million offer a “prank” and had also declined to attend a settlement conference with the judge.

Whether Shawe ends up buying his company at an auction, or eventually buying from Elting, Shawe said it will cost $20 million dollars on top of the buyout price not counting opportunity cost of litigating.

Shawe contends the fact that employees want to buy Elting’s shares gives lie to her argument in court that no rational person would buy her shares on the open market because they wouldn’t be willing to partner with Shawe.

The offer they made is pretty unique in a business world,” Shawe said. “They were trying to put up their own money to buy Ms. Elting’s shares, and are confident enough to seek to buy equity into the company they have faith in. That should demonstrate to anyone, including the court, just how stable and viable the firm is. The employees want to become equity partners with their own hard earned money.”

Fred Lucas is the author of "Tainted by Suspicion: The Secret Deals and Electoral Electoral Chaos of Disputed Presidential Elections."

TheBlaze contributor channel supports an open discourse on a range of views. The opinions expressed in this channel are solely those of each individual author.

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