The Topps Company, Inc. (NDAQ:TOPP) may face some strong shareholder opposition after it ousted two hedge fund managers from a committee built to evaluate possible rival bids to the company's standing $385.4 million buyout agreement with Michael Eisner's Tornate Co. The committee - which included Arnaud Ajdler from Crescendo Partners and Timothy Brog from Pembridge Capital Management - was initially setup by the company to seek better offers during the next 40 days after Topps was sued by a shareholder on March 8th who sought a higher sale price. Ajder and Brog, who collectively own 6.6% of the company, contend that the $9.75 per share offer was too low and expressed concern that the company did not show the company to all possible buyers (notably, director John Jones also opposed the bid).

Ajder fired back at management today in a letter attached to his Schedule 13D/A filing with the SEC. In the letter, he said that the company set a new low in corporate governance that would be taught in business schools as a clear illustration of poor corporate governance. Ajdler went on to note five concerns:

1. The board appointed two new people (who support the existing merger agreement!) with the power to monitor the day-to-day developments during the "go-shop" period and made it clear that the Ad Hoc Committee (of which Brog and Ajder were members) no longer had such authority. Why? The board reasoned that the two hedge fund managers could not adequately reprensent the best interest of shareholders!
2. The board created an Executive Committee consisting of all board members except Brog and Ajder. Instead of allowing them to voice their opinions in the company's board room, the company simply created a new committee to silence opposing views. Clearly this isn't in the best interest of shareholders.
3. The company failed to correct a statement that it made on March 7th to the WSJ in which it said, "'Over the past two years, we have been working with Lehman Brothers to examine all opportunities to deliver value, and no other superior proposals emerged in that time frame,' said a spokeswoman to the company." This statement gives the false impression that Topps was shopped or that alternative proposals were solicited before entering into a merger agreement at $9.75, which isn't true.
4. The board held a telephonic meeting in which none of the three directors who voted against the merger agreement were provided with an agenda. When a motion to have Topps issue corrective disclosure was duly made and seconded at the meeting, it was ruled out of order by the chairman because he said it wasn't on the agenda.
5. The company mischaracterized Ajder's comments opposing the deal as stemming solely from the fact that the process that led to the merger agreement was flawed because the board did not shop the company; however, the main reason was the inadequate offer price.

In the end, Ajder strongly urged the comapny to reconstitute the Ad Hoc Committee, to disband the Executive Committee and to make corrective disclosure. Topps continues to ignore the will of its shareholders and continues to be run as a private club, and according to the hedge fund, this must stop. If the company takes such corrective actions and additional bids are solicited, it could mean significantly higher offers for the company. This makes TOPP a stock worth watching!

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