Street.Com – Three hedge funds raised their stakes in Lexar Media (LEXR:Nasdaq –news – research –Cramer’s Take) last week, suggesting management at the flash memory company could face a proxy fight from itsmain shareholders. At issue is the company’s plan to sell itself to Micron Technology (MU:NYSE – news – research – Cramer’s Take) for $688 million.
The filings last week came after Carl Icahn said he might oppose the acquisition. Hedge fund activist Elliott Associates, which owns 6.5% of the company, also wrote a letter to management in which it strongly criticized the Micron deal, saying that Lexar “is worth significantly more” than what it’s getting. Following Elliott, two large hedge funds, D.E. Shaw and GLG Partners, raised their stakes to 7.9% and 6.3%, respectively, although they did not publicly criticize the Micron deal.
“It’s likely that those hedge fund shareholders are going to force an auction process,” says Daniel Gelbtuch, an analyst with CIBC World Markets. “The price is low in a lot of people’s minds. The firm declared that there was a fair process. But I don’t believe there was an auction, and the activist shareholders believe there should have been,” he says.
Several companies, especially competitors looking to enhance their distribution channels, might have bid if they knew Lexar was for sale, Gelbtuch adds, including Samsung and Fuji Films. “Micron was able to cut a sweet deal because it allowed Lexar’s management team to stay in place, something that a foreign buyer may not have permitted,” he concludes. A spokeswoman at Lexar declined to comment.
