All shareholders could lose in recount battle

In an unusual move last week, shareholders of airbed manufacturer and retailer Select Comfort narrowly rejected a deal that would have given controlling interest to the private the equity firm of Sterling Partners for $35 million.

Or did they?

Select Comfort, which said a few hours after voting ended that the results had been certified by the consulting firm Broadridge Financial Solutions, now says it is asking for a recount.

Indeed, the vote was incredibly close — 50.06% of the company’s shares were voted against the deal — but the prospect of a drawn-out recount can’t be good news for shareholders on either side of the fence, given the company’s precarious financial condition.

“Select Comfort’s financial position remains brittle,” veteran analyst Budd Bugatch of Raymond James & Associates wrote in a report the day after the vote. “(T)he company is operating under waivers from its banks and needs an equity infusion to survive.”

Interestingly, the proposed deal with Sterling has been controversial practically since it was made public in late May. A proxy statement sent to shareholders revealed that two of Select Comfort’s directors voted against the deal because they felt strongly that a so-called rights offering, which would allow existing shareholders to buy additional stock, would be a better course of action.

It’s also interesting to note that one of the directors voting against it, Christopher Kirchen, is one of the four current directors who would remain on the board if the deal is completed. CEO Bill McLaughlin, who will be out of a job if the deal is completed, voted for it.

(McLaughlin must have been comforted by the fact that he would receive two times his annual base salary and target bonus, plus a pro-rated bonus for the current year, as severance pay.)

But while vote tabulators try to figure out who voted for what — maybe they’re looking for hanging chads — the company remains in limbo.

Without a quick resolution, a bankruptcy filing is a distinct possibility. And nobody wins a contest like that.