Earlier this month, The Wall Street Journal published an article on the ongoing litigation in the wake of the 2014 sale of Tibco Software Inc. to Vista Equity Partners. The Tibco litigation involved an error in the calculation of the number of shares outstanding that resulted in Tibco shareholders receiving approximately $100 million less than the buyer was actually willing to pay. The Tibco litigation illustrates the importance of sound corporate record keeping, particularly with respect to stock issued and outstanding and the capitalization table of a company.
The error at issue in the Tibco sale involved double counting approximately 4.3 million shares of unvested restricted stock, thereby overstating the total number of shares outstanding by 4.3 million shares. The unvested restricted stock was apparently included in the capitalization table line item for outstanding common stock, as well as being included as a separate line item for unvested restricted stock. This overstatement of shares reduced the per share consideration by $0.57 per share, or approximately $100 million in the aggregate less than the buyer was actually willing to pay.
While there are a number of other interesting circumstances surrounding the Tibco sale and the share count error, the $100 million magnitude of a relatively common error drives home the importance of maintaining accurate stock records.
- Companies should prepare and timely update stock records, including a spreadsheet, stock ledger and paper stock certificates (if applicable).
- Companies should include detailed notes and error detecting codes in their stock record spreadsheets to identify errors and avoid over or under counting shares.
- When a fundamental corporate transaction involving the stock of a company, such as a sale of the company, stock split, or stock or cash dividend, is proposed, companies should have several internal and external persons independently triple check that the share counts are accurate and can be reconciled to company stock records.