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Perils Of Negotiating Your Own Buyout

Some clients come in for a consultation with no desire to file an oppressed minority shareholder action.  Instead, the goal is to have an attorney draft the papers necessary to accept an offer made by the other side to purchase his or her shares, avoiding just such a court battle.  Corporate attorneys who do not handle shareholder oppression cases may assume the purchase price is fair, or at least not question it closely, and simply “paper” the transaction.  However, several issues must be analyzed in such a situation.

To begin with, the circumstances of how the offer for the client’s shares came about is often very telling.  While it is sometimes dangerous to generalize, it is often quite easy to determine if the client has been negotiating from a position of strength or one of weakness.  If a client has been doing little to show strength, it may be safe to generalize that the offer made may not be as good as it could be.  Sometimes, merely letting the majority shareholders know that the facts as they exist would constitute shareholder oppression (under New Jersey law) entitling you to a buyout, and that you are not afraid to file suit, is sufficient to make their proposal suddenly more reasonable.

In addition, it is often useful to retain a valuation expert to determine whether or not the share price is at least arguably reasonable.  This usually costs far less than the cost of a full-blown appraisal, which can be quite expensive.  And you, as the client, often have no real way of knowing whether the offer is fair.  Having a valuation expert provide at least a “sanity check” can either provide peace of mind, or make you realize that the deal was not nearly as good as you thought it was.

In many instances, clients have come in with offers that seemed extremely generous until they were examined more closely.  One client, after realizing how many “red flags” made it appear that the share price offer was too low, concluded that he should have gone with his first instinct – there was no way his brother (the majority shareholder) would ever give a fair offer without a struggle.

Of course, some would argue that you are better off having your attorney attempt to negotiate a deal for you, rather than doing it yourself.  But if you are made an offer – and you are smart enough to have a lawyer write up the transaction documents – make sure you also have an experienced shareholder rights attorney analyze your minority shareholder rights to help ensure that you are getting paid a fair price under all the circumstances.