Exhibit 2.2
On October 8, 1999, plaintiffs in the action styled Crawford, et al.
v. Cincinnati Bell Inc. et al., C.A. No. 17324, and In re IXC Communications,
Inc. Shareholders Litigation, Consolidated C.A. No. 17324, filed a Joint
Opening Brief In Support Of Their Motion For Preliminary Injunction ("Joint
Opening Brief"). The Joint Opening Brief makes the following assertions with
respect to the proxy statement issued by IXC Communications, Inc. ("IXC"), in
connection with a merger between IXC and Ivory Merger Inc., a wholly owned
subsidiary of Cincinnati Bell Inc. ("CBI") (citations and footnotes to the
record have been omitted):
"1. The Proxy Statement Materially Misrepresents The Role
Played And Advice Given By IXC's Financial Advisors In
Connection With The Merger.
According to the proxy statement, the IXC Board relied upon
the financial advice and opinions of Morgan Stanley and Merrill Lynch in
approving the Merger. The proxy statement, however, makes several
misleading statements about the role played by IXC's financial advisors
in connection with the pursuit of strategic alternatives and the
evaluation of the CBI transaction.
First, the proxy statement states that IXC retained Morgan
Stanley to provide advice and a financial opinion in connection with the
Merger, pursuant to a letter agreement dated as of February 3, 1999. What
the proxy statement fails to disclose is that the letter agreement was
backdated i.e., it was signed on July 20 or 21, 1999 but defendants never
changed the February 3, 1999 date that appeared on the initial draft of
the letter. In fact, the IXC Board did not approve the retention of
Morgan Stanley or of Merrill Lynch until after both advisors had
presented their respective oral opinions that, subject to the limitations
of the opinions, the exchange ratio to be used in the Merger was fair to
IXC's stockholders other than CBI.
Second, the proxy statement fails to disclose that neither
Morgan Stanley nor Merrill Lynch's opinions took into account as an
indicia of fairness or unfairness CBI's purchase of one
half of [General Electric Pension Trust's ("GEPT")] stock in IXC at $50
per share.
Third, the proxy statement fails to disclose that Merrill Lynch
had been brought into the picture because the process had not gone as
well as IXC had hoped. Thus, despite telling shareholders that Morgan
Stanley had been advising IXC since February, IXC shut Morgan Stanley out
for much of May and June, and ultimately presented the CBI deal to Morgan
Stanley as a fait accompli. The issue of the size of Morgan Stanley's fee
was not finally addressed until the afternoon of July 20, 1999. Morgan
Stanley's fee was contingent on the value of the deal, and Merrill Lynch
was brought in to calm the Board's concerns that Morgan Stanley might
refuse to issue its opinion.
Fourth, the proxy statement omits perhaps Morgan Stanley's most
important advice to IXC's directors. Morgan Stanley advised the IXC
directors, prior to the Board's approval of the Merger, that there were
companies who would make better strategic partners with IXC than would
CBI. Morgan Stanley even recommended as a course of action that PSINet
and [Company A]2 be contacted before the IXC Board voted on the Merger
Agreement, to see if either of those entities would offer a transaction
superior to the Merger. The IXC Board refused that request. Neither
Morgan Stanley's advice nor the Board's refusal to allow at the time of
the Merger its investment bankers to pursue potential transactions
superior to the Merger is disclosed in the proxy statement.
2. The Proxy Statement Materially Misrepresents The
Board's Consideration Of The Merger
The proxy statement contains several serious misstatements
about the IXC Board's decision making process, as well as the interests
of the directors who approved the Merger.
First, and perhaps most striking, is that the proxy statement's
section on "Interests of IXC's Directors and Management in the Merger"
does not disclose (i) that Mr. Bragin, an IXC
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2 Not identified for confidentiality reasons.
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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 GEPT and (ii) that the Merger
Agreement was conditioned upon the GEPT Stockholders Agreement [between
CBI and GEPT (the "Stockholder Agreement")] which in turn was conditioned
on CBI's purchase of GEPT's IXC shares of $50 cash per share.
Second, the proxy statement does not disclose that Mr. Scott
was terminated as a director of the Company just days before the Board
considered the Merger Agreement. Of course, the proxy statement also does
not disclose the reason for the termination of Mr. Scott from the Board
prior to the Board's consideration of the Merger Agreement: i.e., that
the presence of Mr. Scott, who believed that CBI's concerns over IXC's
cash position were exaggerated, might stir up emotion among the
directors. The stockholders are entitled to such information, and to
decide for themselves whether to draw the inference that Mr. Scott was
removed so that his views would not present an obstacle to the approval
of the Merger.
Third, the proxy statement states that one factor upon which
the IXC directors based their approval of the Merger was the decision of
Messrs. Swett and Irwin to "take all stock in the merger, believing the
potential upside in the stock price of the combined company outweighed
the benefits of taking half the value of their shares in cash." What the
proxy statement fails to disclose is that Mr. Irwin has a tax basis in
his IXC stock of less than $5 per share; thus making cash an unattractive
choice for tax purposes, not because of the expected profitability of the
combined company. Why else would Messrs. Irwin and Swett [Footnote: Mr.
Swett's tax basis in his IXC stock has still not been disclosed, but in
light of his status as a co-founder of [IXC] and his service to [IXC], he
is likely to be similarly situated to Mr. Irwin.] refuse an offer to
receive a cash premium for their IXC stock, which they could then have
used to purchase more IXC shares in the market prior to the Merger than
they owned in the first place, giving them an even greater stake in the
combined company?
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Fourth, the proxy statement identifies as a reason for
approving the Merger, the "high degree of compatibility in the businesses
of IXC and Cincinnati Bell". That statement, however, flatly contradicts
(i) the information the IXC Board received from its due diligence team
that the companies did not have any cost or revenue synergies, and (ii)
the advice of IXC's investment bankers that PSINet and [Company A] both
would have been better fits for IXC than was CBI.
Fifth, the proxy statement represents that the IXC directors'
approval of the Merger was based in part on the fact that General
Electric, considered by the IXC Board to be one of the most respected
institutional investors in the world, was in favor of the Merger and
would remain a stockholder of the combined company with approximately 10
million shares of stock on a fully diluted basis in the combined company.
That portion of the proxy statement, however, does not mention that GEPT
would not have agreed to the Stockholder Agreement upon which CBI
conditioned the Merger Agreement if it had not been able to sell half of
its IXC stock to CBI for a $50 cash premium. GEPT required as a condition
to the Merger Agreement that it be paid $50 in cash for half of its IXC
shares, in large part to accomplish a divestment of what GEPT felt was
too large of a position in IXC. Moreover, GEPT's representative on the
Board testified that he has no knowledge of what GEPT's future plans are
for its IXC holdings.
Sixth, the proxy statement suggests that the IXC Board based
its approval of the Merger in part on a belief that CBI had high quality
and depth in its management. What the proxy statement fails to disclose
is that IXC's directors were told by the Company's due diligence team
that one risk of the Merger was the lack of depth in CBI's management. In
addition, IXC's due diligence team informed the Board that there were
effectively no synergies in the combination.
Seventh, the proxy statement cites the "lack of alternatives to
the merger available to IXC and its stockholders and the lack of other
possible acquirers" as a factor considered by IXC's Board in approving
the transaction. Again, what the proxy statement fails to disclose is
that
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not only did Morgan Stanley advise IXC that at the time of the Merger
Agreement at least two potential strategic partners were preferable to
CBI, but that the IXC Board refused to contact or to authorize Morgan
Stanley to contact those entities or any other entities who had
previously expressed interest.
Eighth, the proxy statement identifies the following as price
factors considered by the IXC Board in approving the Merger: (i) the
Morgan Stanley and Merrill Lynch fairness opinions (limited as they are),
(ii) the "premium" that the exchange rate in the Merger offers IXC
stockholders above the market price of their shares prior to IXC's
announcement that it had hired Morgan Stanley "to pursue strategic
alternatives" [Footnote: In light of IXC's instructions forbidding Morgan
Stanley from soliciting interest in IXC, the term "pursue" is itself
misleading.] and (iii) the expected trading price of IXC stock if the
disappointing second quarter 1999 results were announced without the
concurrent announcement of the retention of Morgan Stanley. These listed
factors - as well as the statement that there was a lack of alternative
transactions to the Merger - are the purported reasons that the IXC Board
felt that the Merger price was fair and/or the best price available to
IXC. What the proxy statement fails to disclose, however, is that:
(i) the IXC Board felt that the Company's stock was
undervalued;
(ii) in the negotiations preceding the execution of the Merger
Agreement, IXC had requested that CBI pay all of the
Company's stockholders the same cash price to be received
by GEPT;
(iii) in the same negotiations, IXC had sought a price of $100
per share for all of the Company's stockholders; and
(iv) following the announcement of the Merger and the expected
precipitous decline in CBI's stock price, IXC repeated its
request that all its
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stockholders be paid the same cash price and that the
price be raised to $100 per share."
In addition, in the Joint Opening Brief, the plaintiffs refer to the
section appearing on page 20 of the proxy statement/prospectus entitled "The
IXC Special Meeting - Voting by IXC Directors and Executive Officers." The
plaintiffs allege:
"That disclosure is materially misleading for two reasons.
First, the statement that each director and executive has expressed his
or her intention to vote in favor of the Merger is false. IXC's Chairman
and Chief Executive Officer, Mr. Zrno, testified that he has not
expressed any intent as to how he will vote whatever stock he might hold
at the time of the special meeting and that he is unaware of any officer
or director other than Messrs. Swett and Irwin stating an intention to
vote shares in favor of the Merger.
Second, the statement that approximately 20% of IXC's common
stock outstanding is owned by directors or officers or affiliates of
directors and officers is almost certainly inaccurate and is without
doubt confusing. Messrs. Swett and Irwin and their affiliates
collectively own approximately 17% of IXC's common stock. GEPT, with whom
Mr. Bragin is affiliated, owns approximately 13% of the Company's common
shares outstanding. These three stockholders and their affiliates alone
account for approximately 30% of the Company's common stock outstanding,
thus putting the 20% figure into question. The proxy statement, however,
also suggests that the 20% of shares held by executive officers and
directors does not include Mr. Swett, Mr. Irwin and GEPT. That
interpretation is also problematic. If, in addition to the 30% owned by
GEPT and Messrs. Swett and Irwin, IXC's remaining officers and directors
and their affiliates own an additional 20%, then approximately 50% of the
Company's stock has been committed to or intent has been expressed to
vote and approve the Merger. Combined with CBI's 13% stake, approval of
the Merger would be assured. In any event, at best, the calculations of
shares owned or controlled by IXC officers and/or directors or their
affiliates is hopelessly confusing. Even Mr. Zrno, a director and IXC's
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Chief Executive Officer, could not make any sense of it."
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