ACS's Darwin Demonstrates 'Survival of the Fortunate'

Yesterday, Merger Market reported that ACS and its special committee have decided not to file suit –brought “on the grounds of auction interference”—against ACS Chairman Darwin Deason and Cerberus.

In an April letter, the chair of ACS’ special committee overseeing the deal questioned whether a truly competitive bid was possible given Cerberus’ exclusive agreement with Deason to negotiate the take-private transaction. Also at issue was Deason’s employment agreement, as it may have been a deterrent to buyers:

[Deason’s] employment agreement is unusually strong for a chairman and grants him chief executive-type rights, including the exclusive and sole right to all hiring and compensation activities at the executive level, as well as the sole right to nominate board members… Further, to obtain the agreement’s termination, notice must be provided 30 days prior to 18 May of any given year. Thus any buyer of ACS would not be able to terminate the agreement until 18 April of next year, it was pointed out.

But ACS and the special committee are betting that the threat of litigation has appeased wary buyers:

ACS and the special committee believe the pursuit of litigation would not get additional mileage as the communicated threat toward Deason was adequate. …[A]s a result of the threat, the special committee feels the auction process may be enhanced.

Deason must be particularly relieved to have withstood another round of scrutiny, as his role in the take-private bid was likely motivated by a desire to move his business dealings out of the spotlight. Deason began deal talks with Cerberus back in November 2006, at about the same time as the backdating scandal that saw the forced resignations of ACS’ chief executive and chief financial officers. Deason (alleged in pending litigation to have been personally enriched—to the tune of $71 million—by the options tinkering) claimed to be unaware of any backdating, and came out unscathed. (The WSJ reported that Deason may have known more about ACS’ backdating practices than previously acknowledged. In a hand-written note uncovered during a probe into ACS’ backdating practices, Deason stated that the company “always” picked the “lowest” prices “so far” in the quarter to award stock options.)

Seems to be a survivor, that Darwin Deason. But he’s not out of the woods, yet. He’s been named in two, still-pending, shareholder lawsuits related to the deal.