The reverse cannibalization statement has been issued by Phillips, who says he is not optimistic that a takeover will be finalized. He says the statement has been issued "because of the existing confusion and speculation in the marketplace regarding the future of FirstPlus."
Nineteenth Investment is primarily a real estate acquisition and finance company. The negotiations center on a tax-free stock-for-stock transaction that would place Nineteenth stockholders in control of the home mortgage lender and substantially dilute FirstPlus shareholders' interests, according to Phillips' statement.
"FirstPlus believes that there is significant likelihood that the issues may not be resolved and that the transaction will not move forward," says Phillips. "In which case, the liquidation of FirstPlus may be necessary."
Phillips says it is unlikely that FirstPlus, headquartered at 1750 Regal Row in Dallas, will reconstitute any of its previous business plans, such as originating mortgage loans, servicing mortgage loan portfolios or investing in mortgage loan portfolios and Interest Only Strips. If the takeover falls through, there are no plans to re-list FirstPlus' common stock with any major stock exchange, says Phillips. "FirstPlus believes that the proposed transaction with Nineteenth represents the only potential opportunity for the company to resume business as an operating entity," says Phillips. "And, because of Nineteenth's affiliation (with Phillips), the company believes that Nineteenth is the only entity that would be willing to take the stock of FirstPlus as consideration in an acquisition."
The acquisition will not occur if there is an adverse market reaction to the proposal, says Phillips. Since May, FirstPlus has had its CFO James Roundtree resign and its president and board member Eric Green sever ties with the company, which has a primary subsidiary, FirstPlus Financial Inc., in Chapter 11 bankruptcy in the US Bankruptcy Court, Northern District of Texas. Also hanging over FirstPlus' fiscal stability is a class-action lawsuit filed in Texas in 1998, alleging Phillips used shares for collateral for a favorable loan as the company disseminated false and misleading information regarding its growth. The alleged false growth reports resulted in stock purchases that drove up the price so FirstPlus could acquire other businesses.
Phillips' statement says FirstPlus has no operating business and is still facing "significant issues" regarding its viability. FirstPlus pitchman Dan Marino of the Miami Dolphins also has severed his ties while yet another lawsuit is pending from the Nascar team that was sponsored by the home lender.
The bankruptcy court has ordered FirstPlus to dispose of a substantial portion of its assets and apply the proceeds to its financially troubled subsidiary. The primary assets facing disposition are owned by Western Interstate Bancorp, a wholly owned subsidiary of FirstPlus. The assets include contractual servicing rights for mortgage loans serviced by WIB and FirstPlus Bank, an FDIC-regulated California Industrial Loan Co. FirstPlus had closed Aug. 30 with CountryWide Home Loans Inc. on the sale of the servicing rights. Meanwhile, FirstPlus Bank is being marketed for sale.
The bankruptcy plans calls for FirstPlus to retain ownership in the common stock of FirstPlus Financial Inc. although the parent operation and WIB are being managed by an independent, court-appointed trustee who could place the shares into a voting trust. As a result of the bankruptcy plan, Phillips says FirstPlus' primary assets are its Interest Only Strips through its ownership of the reorganizing entity. FirstPlus consists of six subsidiaries with 124 branch offices.
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