Merisel (Litigation)

Merisel was a $4 billion computer products distributor that experienced significant problems with its overleveraged capital structure. In order to avert a loss of trade support due to such leverage, Merisel reached an agreement with its public bondholders, in which such holders would convert into approximately 80% of the company's pro forma equity.

However, the company did not promptly close the transaction, and in the ensuing months, stock market valuations for computer distributors appreciated dramatically. As a result, the equity the bondholders had bargained for was worth far more than the face amount of their bonds.

Merisel then sought to take advantage of the value increase. It negotiated a deal with a financial institution that provided for an equity investment to repay operating company debt. When the dust settled, old stockholders retained approximately 30% of the pro forma company (up from 20% in the bondholder deal) and the bondholders were told that their debt would be reinstated. Essentially, Merisel simply cancelled the equity deal with the bondholders.

Gordian Group was engaged by Cleary, Gottlieb, Steen & Hamilton, counsel to the bondholders. A significant part of our assignment involved assessing the level of damages the bondholders suffered, and Gordian Group was able to provide compelling testimony that demonstrated a significant value loss.

In addition, Gordian Group was also asked to evaluate whether the original bondholder deal could ever have been consummated in the first place (no deal, no damages). This part of the case revolved around very arcane bankruptcy issues. Again, Gordian Group was able to provide compelling testimony. The case settled prior to trial with an attractive package for Gordian Group's bondholder clients.