– Universal Entertainment has decided to terminate its merger deal with Capital Acquisition Corporation, citing a material breach of the agreement and fraud by 26 Capital. 26 Capital plans to move forward with the deal despite Universal’s exit.
– Universal’s decision to end the merger was influenced by a lawsuit filed against 26 Capital by asset manager Lim Capital, along with allegations of fraud and violations of the Investment Advisers Act. Universal also accuses 26 Capital’s CEO of making misleading public statements.
In an entertaining turn of events that could have been ripped from the pages of a courtroom drama, Universal Entertainment, the Japan-based parent of Okada Manila, has thrown a proverbial spanner in the works of its merger deal with Capital Acquisition Corporation (NASDAQ: ADER). Citing a “material breach of the merger agreement and fraud by 26 Capital,” Universal has decided to call it quits on the merger. Now, this isn’t a simple case of “it’s not you it’s me,” but more like “it’s definitely you, and we’re taking this to court.” But the plot thickens as 26 Capital, unfazed by Universal’s dramatic exit, has claimed the termination notice to be “baseless” and has vowed to move ahead with the deal.
Now, let’s rewind to March this year when Universal and its affiliates went ahead and sued 26 Capital in the Delaware Chancery Court. The allegations: the blank check company was in a mad rush to finish the merger, possibly skirting around securities laws in the process. 26 Capital, not one to shy away from a fight, countered by calling Universal’s lawsuit a “desperate” attempt to shift attention from their own alleged “improper conduct” during negotiations. You could almost hear the “he said, she said” echoing in the courtroom.
But the drama doesn’t end there. In a twist worthy of a daytime soap, Universal’s decision to exit the merger was partly influenced by a lawsuit filed against 26 Capital by US-based asset manager, Lim Capital. They cited the cancellation of 26 Capital stock transactions by Lim Capital worth around $25 million, along with allegations of fraud and violations of the Investment Advisers Act, as reasons for pulling out of the merger deal.
Also, Universal didn’t shy away from throwing 26 Capital’s CEO, Jason Ader, under the bus, accusing him of telling tall tales to public investors about the state of affairs at Okada Manila. The purpose: to soothe jittery shareholders. Universal claims it never gave Ader the green light to make such soothing, albeit misleading, public statements.
As if breaking up the merger wasn’t enough, Universal now wants 26 Capital to pay for its dinner and the movie…or rather, legal costs, fees, and any financial losses that might result from the potential abandonment of the merger. In simpler terms, they want compensation.
So, what’s next? A high-stakes litigation, set for July 10, 2023, that will decide the future of the merger. The Delaware Prime Minister’s Court will be the battleground where this corporate war will be fought. Both Universal and 26 Capital seem determined to stick to their guns, with 26 Capital hoping to complete the transaction and improve corporate governance, while Universal is keen to distance itself from 26 Capital and seek recompense for alleged contract breach and fraud. Grab your snacks, sit back and watch the fireworks.