The Orchard today asked stockholders to approve a formal merger with parent company Dimensional Associates. When complete, the merger would make the Orchard again a privately owned company.
Dimensional already owns 42% of the company's outstanding common stock and 99% of its outstanding Series A preferred stock. The merger proposal asks stockholders to approve an offer of $2.05 per share, a price that represents a 21% premium over the Orchard's March 15 closing price, and values the company at about $13 million. The deal is expected to close in the third quarter.
From the release:
Stockholders will also receive a contingent right to receive additional consideration, under certain circumstances post-closing if Dimensional Associates or any of its affiliates enters into a commitment to sell at least 80% of The Orchard's voting securities or assets within six months of the consummation of the merger... Under the terms of the merger agreement, The Orchard's Special Committee will oversee a 30 day go-shop period ending April 14, 2010 to determine if there are any other interested buyers for The Orchard. The Special Committee has retained Craig-Hallum Capital Group LLC to coordinate its solicitation activities during the go-shop period.
The Orchard became a public company after acquiring the publicly owned Digital Music Group in July of 2007. Since going public, the Orchard's money struggles became apparent. Although it has not yet released fourth quarter earnings from last year, through the third quarter of 2009 the Orchard posted a net loss of $17.5 million, with revenues of $45.5 million. Last November, NASDAQ issued the company a delisting notice, which it later rescinded. It also laid off about 20% of its staff in the third quarter.
The offer marks a number of changes at the Orchard since, including the departure of longtime CEO Greg Scholl in October, replaced by form executive VP and GM Brad Navin.