GMI has announced a sale of its business, and GMI’s Board of Directors therefore has a duty to obtain the highest price reasonably achievable. When the Board considers value for GMI stockholders, it cannot ascribe any value to special inducements offered only to a limited group of individual institutional investors in exchange for their consent to an otherwise inferior or non-committed transaction. These sorts of tactics to build ‘consensus’ make the Board’s decision harder, not easier. As you know, GMI is a Delaware corporation with a large number of creditors and thousands of shareholders, most of whom do not have access to sophisticated restructuring counsel. It is the value received by the stakeholders that are not part of the bidding consortium that is meaningful to the Board of Directors.
With this in mind, the Debtors have identified a number of initial concerns with your Proposal and we would like to engage with you to address them.
First, although the Proposal acknowledges the constraints placed on GMI by its inappropriate capital structure and the need for additional equity, the Debtors are concerned that the Series A Preferred Stock and Series B Preferred Stock may not be treated as full equity equivalents by financial markets, rating agencies and business partners critical to GMI’s future success. The quantum and cost of the proposed debt-like elements in these securities appear likely to hamper both strategic transactions and the capital deployment necessary for GMI to remain relevant in its core markets. The terms of the Series A Preferred are extremely costly to the company if paid in cash, or extremely dilutive to the common equity if PIK’d. This likely will have consequences for the future value of the equity held by current GMI stockholders, and could negatively impact the financial viability of the reorganized company and the availability and terms of exit financing. As a result, we are interested in exploring ways of reducing the cost and dilution of this structure.
Second, the Proposal is in substance a sale of GMI for cash to selected stockholders. Non-participating GMI stockholders suffer near total dilution from the issuance of the Series A Preferred Stock but receive only a very modest investment opportunity (less than 5% of the Series A Preferred Stock) in return. Accordingly, the Debtors have not been able to determine based on information available to them that the Proposal is superior to the current proposed stalking horse bid, or to any other alternative sale. Among other things, it is unclear how the Proposal allocates value to those portions of the business that are free of potential claims from Honeywell. This is important, of course, because that allocated value should be available for distribution to GMI stockholders. As a result, the Debtor is interested in exploring ways of expanding value to all stockholders.
Third, the interests of non-participating GMI stockholders have been represented in settlement negotiations with Honeywell. In particular, under the Proposal, Honeywell is to receive interests that are junior to the Series A Preferred Stock acquired by the Plan Sponsors but senior to the remaining claims of non-participating GMI stockholders.
