1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
October 13, 1999
- --------------------------------------------------------------------------------
(Date of earliest event reported)
IXC COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-20803 74-2644120
- ---------------------------- ------------ ----------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of organization) File Number) Identification Number)
1122 Capital of Texas Highway South, Austin 78746
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(512) 328-1112
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
2
ITEM 5. OTHER EVENTS
Cincinnati Bell Inc., an Ohio corporation ("CBI"), IXC Communications,
Inc., a Delaware corporation ("IXC"), and Ivory Merger Inc., a Delaware
corporation and a wholly owned subsidiary of CBI, previously entered into an
Agreement and Plan of Merger dated as of July 20, 1999 (the "Merger Agreement"),
pursuant to which IXC will merge (the "Merger") with and into Ivory Merger Inc.
and become a wholly owned subsidiary of CBI.
In light of the decision of Chancellor Chandler on September 27, 1999,
in the Court of Chancery of the State of Delaware in Phelps Dodge Corporation
vs. Cyprus Amax Minerals Company, CBI and IXC have entered into Amendment No. 1
dated as of October 13, 1999 to the Merger Agreement (the "Amendment"). While
IXC does not believe that the decision is applicable to the Merger or the Merger
Agreement, IXC has decided to amend the Merger Agreement. The Amendment amends
Sections 4.03 and 4.04 of the Merger Agreement and provides that in response to
an IXC Superior Proposal or a Cincinnati Bell Superior Proposal (each as defined
in the Amendment), IXC or CBI, as the case may be, may engage in discussions to
inform itself of the terms of any such Superior Proposal. The terms and
provisions of Sections 4.03 and 4.04 of the Merger Agreement otherwise remain
unchanged.
A copy of the Amendment is attached hereto as Exhibit 2.1. Such Exhibit
is incorporated by reference to this Item 5 and the foregoing is qualified in
its entirety by reference to such Exhibit.
In connection with putative class action litigation filed by John D.
Crawford and other IXC stockholders (John D. Crawford, et al., v. Cincinnati
Bell Inc., et al., C.A. No. 17334 (the "Crawford Action") and In re IXC
Communications, Inc. Shareholders Litigation, Consolidated C.A. No. 17324), in
the Court of Chancery of the State of Delaware, plaintiffs served a Joint
Opening Brief In Support Of Their Motions for Preliminary Injunction (the "Joint
Opening Brief") on October 8, 1999. On October 13, 1999, plaintiffs in the
Crawford Action filed a motion for leave to file a second amended and
supplemental complaint (the "Amended Complaint"). In the Joint Opening Brief and
in the Amended Complaint, plaintiffs allege that the joint proxy
statement/prospectus (the "Proxy Statement") filed with the Securities and
Exchange Commission on September 13, 1999, and mailed by IXC to its stockholders
on or about September 14, 1999, contained various misstatements and omissions
that are misleading. IXC does not believe that any of the alleged misstatements
or omissions in the Proxy Statement are misleading or material.
A copy of the relevant portion of the Joint Opening Brief regarding the
Proxy Statement is attached hereto as Exhibit 2.2. A copy of the Amended
Complaint is attached hereto as Exhibit 2.3. Exhibits 2.2 and 2.3 are
incorporated by reference to this Item 5 and the foregoing is qualified in its
entirety by reference to these Exhibits. Certain of plaintiffs' disclosure
allegations are listed numerically below. Following each numbered paragraph,
certain additional disclosures are provided. Information relating to CBI is
being provided by CBI and information relating to IXC is being provided by IXC.
-2-
3
1. The Proxy Statement fails to disclose that the letter agreement in
which IXC engaged Morgan Stanley was backdated (i.e., it was signed
on July 20 or 21, 1999 but dated February 3, 1999).
o On February 4, 1999, IXC publicly announced that it had engaged
Morgan Stanley to explore strategic alternatives. At around this
time the parties negotiated the general parameters regarding the
scope of Morgan Stanley's engagement and Morgan Stanley began
performing services.
o The engagement letter was not signed by both parties, however,
until July 20, 1999, when the parties finalized their
negotiations regarding the fee to be paid to Morgan Stanley for
its services. It is not unusual in the investment banking
business for engagement letters to be finalized immediately
prior to the delivery of fairness opinions but to be dated as of
an earlier date.
2. The Proxy Statement fails to disclose that neither Morgan Stanley
nor Merrill Lynch issued fairness opinions with respect to CBI's
purchase of one half of GEPT's stock in IXC at $50 per share.
o The fairness opinions of Morgan Stanley and Merrill Lynch
address only the fairness of the exchange ratio. These fairness
opinions are attached as Annexes 8 and 9 to the Proxy Statement.
3. The Proxy Statement fails to disclose that IXC shut Morgan Stanley
out for much of May and June and retained Merrill Lynch because IXC
was concerned that Morgan Stanley might refuse to issue a fairness
opinion.
o One of the reasons that Merrill Lynch was retained was because
IXC was not completely satisfied with the progress being made in
examining strategic alternatives and believed that the addition
of Merrill Lynch would assist IXC in its efforts.
o Both Merrill Lynch and Morgan Stanley participated in the due
diligence process with respect to CBI.
o If IXC had been unable to reach an agreement with Morgan Stanley
as to fees, then Morgan Stanley would have withdrawn from the
IXC engagement and would not have rendered a fairness opinion as
to the exchange ratio provided by the Merger.
-3-
4
4. The Proxy Statement fails to disclose that the amount of Morgan
Stanley's fee was contingent on the value of the deal and not
finalized until the afternoon of July 20, 1999.
o Morgan Stanley's and Merrill Lynch's respective fees were
finalized on the afternoon of July 20, 1999.
o There was disagreement as to how Morgan Stanley's fee was to be
determined. After negotiations, Morgan Stanley and IXC finally
agreed that Morgan Stanley would receive a fee of $5 million
payable upon completion of the Merger.
5. The Proxy Statement fails to disclose that Morgan Stanley advised
the IXC directors that there were companies who would make better
strategic partners with IXC than would CBI.
o Morgan Stanley believed that there were other companies that may
have provided a better strategic fit with IXC than CBI. There
was no expression of interest pending, however, from any other
company at the time the Merger was approved by the IXC Board.
6. The Proxy Statement fails to disclose that Morgan Stanley
recommended that PSINet and [Company A](1) be contacted before the
IXC Board voted on a merger with CBI.
o Morgan Stanley stated that contacting PSINet and [Company A](1)
before voting on a merger with CBI was a course of action
available to IXC. The IXC Board considered and rejected this
course of action.
7. The Proxy Statement fails to disclose that Mr. Bragin, an IXC
director, has served since 1985 as Vice President of General
Electric Investment Corporation, a subsidiary of General Electric
Company, which also is an advisor to the Trustees of General
Electric Pension Trust ("GEPT").
o Wolfe H. Bragin is a Vice President at General Electric
Investment Corporation, which also is an advisor to GEPT. Mr.
Bragin has held this position since at least 1985.
- ----------
(1) Not identified for confidentiality reasons.
-4-
5
8. The Proxy Statement fails to disclose that the Merger Agreement was
conditioned upon the GEPT Stockholders Agreement which in turn was
conditioned on CBI's purchase of GEPT's IXC shares for $50 cash per
share.
o CBI would not have entered into the Merger Agreement without an
agreement by GEPT to vote its IXC shares in favor of the Merger.
o GEPT required that CBI agree to purchase from GEPT approximately
half of its IXC shares for cash.
9. The Proxy Statement fails to disclose that Mr. Benjamin Scott was
terminated as a director of IXC just days before the IXC Board
considered the Merger Agreement because IXC was concerned that Mr.
Scott may pose an obstacle to the Merger.
o At the time Mr. Scott resigned as chief executive officer of
IXC, it was agreed that Mr. Scott would also resign from the IXC
Board at some appropriate time in the future.
o Mr. Irwin suggested that it would be appropriate for Mr. Scott
to resign from the IXC Board before the deliberations concerning
the Merger. Mr. Scott resigned from the IXC Board effective July
17, 1999.
o Mr. Scott has stated that he fully supports the Merger.
10. The Proxy Statement fails to disclose that Mr. Irwin preferred
consideration in stock over cash because he had a tax basis in his
IXC stock of less than $5 per share.
o Mr. Irwin's IXC shares have a per share basis of less than $5.
o A merger in which cash consideration was paid could result in
significant capital gains tax liability to Mr. Irwin, Mr. Ralph
Swett, and other stockholders.
o Mr. Irwin has stated that the tax-free nature of the Merger was
important to many IXC stockholders, including himself and Mr.
Swett.
11. The Proxy Statement fails to disclose certain concerns expressed by
the IXC due diligence team to the IXC Board regarding a merger
between IXC and CBI.
o The IXC due diligence team presented a report to the IXC Board
that concluded that there would be very limited cost synergies
and limited revenue synergies in a merger with CBI.
-5-
6
o The IXC due diligence team also noted that one risk of a merger
with CBI was that the second level of management at CBI had
limited experience operating outside of the Cincinnati, Ohio
region.
o The IXC Board considered the report of the due diligence team.
12. The Proxy Statement misrepresents the number of shares owned by
directors and officers of IXC and their affiliates.
As of September 22, 1999, the record date for the IXC stockholders
meeting:
o Messrs. Swett and Irwin and their affiliates owned and are
entitled to vote approximately 16% of the IXC common stock and
are committed to vote, as stockholders, for the adoption of the
Merger Agreement.
o GEPT owned approximately 10% of the IXC common stock and is
committed to vote for the adoption of the Merger Agreement.
o The other IXC directors and executive officers and their
affiliates (including Mr. Bragin but excluding Messrs. Swett and
Irwin and GEPT) owned and are entitled to vote approximately 1%
of the IXC common stock and intend to vote for the adoption of
the Merger Agreement.
o The share ownership of these individuals and entities was:
-6-
7
Approximate
Percentage of
IXC common IXC common
Name or Entity stock owned stock owned
- -------------- ----------- -------------
Richard D. Irwin (and affiliates) 3,254,990 9%
Ralph J. Swett (and affiliates) 2,740,716 7%
---------
Sub-total: 5,995,706 16%
=========
GEPT 3,625,172 10%
=========
Wolfe H. Bragin 4,000 *
Joe C. Culp 2,612 *
Dominick DeAngelo 0 *
David L. Hughart 0 *
Stanley W. Katz 2,000 *
Carl W. McKinzie 211,917 *
Jeffrey C. Smith 2,000 *
Stuart K. Coppens 0 *
Michael W. Vent 0 *
Phillip L. Williams 146,762 *
John M. Zrno 0 *
--------
Sub-total: 369,291 1%
========
Total: 9,990,169 27%
========= ==
- ------------
* Indicates ownership of less than 1% of IXC common stock outstanding on
September 22, 1999
-7-
8
As of September 22, 1999, CBI owned and was entitled to vote 4,999,345
shares of IXC common stock, which it acquired from GEPT under a stock purchase
agreement between CBI and GEPT dated as of July 20, 1999. Based on the number of
shares of IXC common stock outstanding on September 22, 1999, CBI owned
approximately 13% of the outstanding shares of IXC common stock on that date.
-8-
9
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
IXC COMMUNICATIONS, INC.
By: /s/ Jeffrey C. Smith
------------------------------------
Name: Jeffrey C. Smith
Title: Senior Vice President,
General Counsel and Secretary
Date: October 14, 1999
-9-
10
EXHIBIT INDEX
Exhibit No. Exhibit
- ---------- -------
2.1 Amendment No. 1 dated as of October 13, 1999, among Cincinnati
Bell Inc., an Ohio corporation, IXC Communications, Inc., a
Delaware corporation, and Ivory Merger Inc., a Delaware
corporation, to the Agreement and Plan of Merger dated as of
July 20, 1999, among Cincinnati Bell Inc., IXC Communications,
Inc. and Ivory Merger Inc.
2.2 Selected portions from the Joint Opening Brief In Support Of
Their Motions For Preliminary Injunction filed on October 8,
1999 by plaintiffs in the action styled Crawford et al. v.
Cincinnati Bell, Inc., et al., C.A. No. 17334 and In re IXC
Communications Inc. Shareholders Litigation, Consolidated C.A.
No. 17324, pending in the Court of Chancery for the State of
Delaware.
2.3 Proposed Second Amended and Supplemental Complaint attached to a
Motion to Amend filed by plaintiffs in the action styled
Crawford et al. v. Cincinnati Bell, Inc. et al., C.A. No. 17334.