sale are fair and reasonable, and in the best interests of the Debtor's estate. The sale is opposed by various bondholders and other holders of equity interests.
The stock is unregistered, or "letter" stock. The Trustees' financial adviser, Mr. John Guest, of Kuhn Loeb & Co., testified that this fact, under the circumstances, would justify a discount of approximately 20% or 25%; the proposed price, $3.50 per share, is about 12.5% below the market as of the date of the final hearing (but about 25% below the recent average price of the stock).
On the other hand, it is now clear that the proposed purchaser is an "insider" in a position of control, and it would therefore appear that the unregistered character of the stock would be of no great significance to this purchaser.
(Any stock acquired by such a purchaser would have to be treated as unregistered in any event.) However, the restrictions on the stock do have the effect of greatly limiting the number of possible purchasers.
If the stock were to be "freed up," either by registration or the issuance of a "no action" letter by the SEC, other imponderables would emerge. The possibility of sales to the public might encourage insiders to make a higher offer; but the availability of such a large block of stock might well have an adverse effect upon the market price.
On balance, I am persuaded that the best interests of the Debtor's estate would be served by registering the stock, or otherwise freeing it from restrictions. Under the provisions of the agreement pursuant to which the shares were issued (Exhibit T-5, paragraph 13), it would seem that registration could be accomplished without undue expense or difficulty.
It is to be noted that all of the stock would not necessarily be rendered immediately available for sale; the status of the pledged stock would still have to be determined, by settlement agreement or otherwise. Moreover, the Trustees would presumably be able to give recognition to market consequences, in deciding the appropriate time or times to dispose of the stock, if sales to the public were to be made. Of course, I do not rule out further negotiations for private placement, either before or after the restrictions are lifted.
I recognize, and fully accept, the view of the Trustees' financial adviser that rejection of the present offer involves some risk. However, in view of the present market price, the substantial improvements in earnings which MSG has experienced, and the excellent prospects for continued improvement, such risks do not seem formidable. In any event, it is clear that the parties having the most direct interest in the matter are eager to assume whatever risks may be involved.
A further consideration should be mentioned. The proposed sale would net the estate $3.44 per share, after broker's commissions of $.06 per share. In view of the magnitude of the transaction, under prevailing practices among members of the stock exchange, a negotiated commission would be appropriate. The uncontradicted evidence at the hearings was to the effect that the proposed commissions are excessive.
For the foregoing reasons, I have concluded that the proposed sale should not be approved. The remaining issues raised by the petition need not be discussed.