Highland Capital Management L.P. has dropped its effort to force a change of governance at American HomePatient Inc., headquartered in Brentwood, in a move that seems to coincide with a final resolution in the company's favor of litigation related to its 2002 bankruptcy filing.
In a two-sentence letter sent to AHOM yesterday and filed with the Securities and Exchange Commission, Dallas-based Highland, owner of 9.9 percent of AHOM's stock and $204 million of its secured debt, withdrew the nomination of its affiliate Patrick H. Daugherty for election at the annual meeting scheduled for June 7. It also dropped a related proposal to amend the home healthcare company's bylaws so that a majority of shareholders could call a special meeting, which could then vote on filling any board vacancies created as a result of an increase in the number of directors.
Announcing in mid-March that it would wage a proxy contest, Highland said it expected to spend $500,000 on the effort. The announcement came several weeks after the investor put forth a buyout offer for the entire company at $3.40 per share, an 11 percent premium at the time. The stockholder expressed frustration with the company's performance and predicted rough times ahead because of Medicare reimbursement changes. The company waited until after Highland's deadline to reply, and then merely acknowledged the offer with a boilerplate statement about its willingness to consider all alternatives.
In a preliminary proxy statement filed last Friday, the company urged shareholders not to support Highland's effort. Although AHOM said it was still "exploring" the buyout offer with Highland, the company argued that Highland's position as its largest creditor meant that any Highland-affiliated director would have an inherent conflict of interest.
The proxy explained that Highland had bought the debt before AHOM entered bankruptcy proceedings in 2002. Then, it was claimed, Highland "caused the company’s secured lenders to object to the company’s proposed plan under which our shareholders would be allowed to keep their equity." Ever since the bankruptcy court overruled Highland and approved the reorganization plan in May of 2003, Highland and other creditors have pursued legal appeals. The proxy statement argued that Highland, if it prevailed in court, would "seek to recover significant interest payments that would substantially decrease" the value shareholders' stock.
The U.S. Supreme Court declined to hear one case related to the bankruptcy in March, and the proxy (dated May 5) stated that the creditors had until May 2, 2006 to make a final appeal to the high court in another case. A search of court records reveals no such appeal. It would appear, then, that Highland has exhausted its legal remedies.
Representatives of the company and Highland were not immediately reachable this morning. NashvillePost.com will update this story if they have comments later today.
AHOM shares rose past Highland's offer price of $3.40 in March, but they have drifted lower in recent weeks and closed Monday at $2.55. The stock was unchanged in early trading this morning.