As far because the special committee of Pivot Technology Solutions is concerned they’ve done their job: After months of negotiations, they’ve agreed to place a proposal, brought forward by some insiders, to the company’s shareholders for their consideration.
And they’ve done that whenever searching of potential buyers demonstrated that neither a private equity firm nor an industry buyer was prepared to offer a good enough premium to help make the deal attractive. As well, they have left the door open to other potential bidders by not including a so-called break fee within the proposal.
“We thought it was compelling enough to put to shareholders since with the Inflexionpoint contract, Pivot’s revenues will be boosted even further,” said Doug Stuve, chair from the special committee established to assess a “share exchange” offer from a so-called Founder Group of shareholders.
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Inflexionpoint is really a private company that will sign a 10-year contract that will pay Pivot US$1.5-million per year as part of the deal.
In that share exchange, all common shareholders, apart from the Founder Group are being asked to convert their holdings to higher yielding preferred securities. The deal has attracted its share of critics partly simply because they have the offer undervalues Pivot.
“Add that [revenue boost] that this structure allows a substantial payment to be made [and] we have a real efficient method of distributing cash,” added Stuve, who noted Deloitte, the advisor retained through the special committee, compared the Founder Group proposal with Pivot continuing using its current share structure.
“In the finish [Deloitte] concluded the sale was fair since the worth of the most well-liked security in their opinion was higher than the need for our common shares,” added Stuve.
There are two possible reasons: the preferreds (at $0.70 a share) possess a higher face value than the common shares which closed Thursday at 50 cents; and also the preferreds are slated to pay a higher distribution compared to common shares do. Last March Pivot implemented its first dividend of $0.03 per share each year. Pivot also announced an ordinary course issuer bid – two moves that gave its stock price a lift.
“We have always considered what we should could do to go back to a yield instrument,” said Stuve, who noted the Founder Group proposal came after earlier attempts to find a buyer emerged empty.
So why don’t you let Pivot remain a public company and let it sign a revenue-sharing consulting agreement with Inflexionpoint, a business that we have an overlap of executives? In this way, all Pivot shareholders – and not just the Founder Group – would directly share in the development from the new entity. Inflexionpoint, located in Singapore, is big with revenues within the billion-dollar range. And contains ambitious plans.
Stuve said the “structure” generates cost savings to Pivot and those savings “are being forwarded to the brand new public shareholders in the form of increased distributions.”
Some shareholders, who bought Pivot on its growth prospects, are concerned the Founder Group can redeem the preferreds at any time. Stuve said if that happened, the pref holders would be taken out at a premium cost of $0.70 – “a significant bump for us to take it to shareholders.”
bcritchley@nationalpost.com
