Pivot Technology Solutions’ special committee says it did its job

As far as the special committee of Pivot Technology Solutions is concerned they’ve done their job: After months of negotiations, they’ve decided to place a proposal, brought forward by a few insiders, to the company’s shareholders for his or her consideration.

And they’ve done that after a search of potential customers demonstrated that neither a private equity firm nor a business buyer was prepared to offer a good enough premium to help make the deal attractive. Too, they’ve left the  door available to other potential bidders by not including a so-called break fee within the proposal.

“We think it is compelling enough to put to shareholders because with the Inflexionpoint contract, Pivot’s revenues will be boosted even more,” said Doug Stuve, chair of the special committee set up to assess a “share exchange” offer from the so-called Founder Number of shareholders.

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Inflexionpoint is a private company which will sign a 10-year contract which will pay Pivot US$1.5-million per year as part of the deal.

In that share exchange, all common shareholders, other than the Founder Group are now being inspired to convert their holdings to raised yielding preferred securities. The deal has attracted its share of critics partly because they have the offer undervalues Pivot.



“Add that [revenue boost] to the fact that this structure allows a significant payment to make [and] there exists a real efficient method of distributing cash,” added Stuve, who noted Deloitte, the advisor retained by the special committee, compared the Founder Group proposal with Pivot continuing with its current share structure.

“In the finish [Deloitte] concluded the offer was fair because the value of the preferred peace of mind in their opinion was greater than the need for our common shares,” added Stuve.

There are a couple of possible reasons: the preferreds (at $0.70 a share) have a higher face value compared to common shares which closed Thursday at 50 cents; and the preferreds are slated to pay a greater distribution than the common shares do. Last March Pivot implemented its first dividend of $0.03 per share per year. Pivot also announced an ordinary course issuer bid – two moves that gave its stock price a lift.

“We usually have 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 came up empty.

So why don’t you let Pivot remain a public company and allow it to sign a revenue-sharing consulting agreement with Inflexionpoint, a company with which we have an overlap of executives? In this manner, all Pivot shareholders – and not simply the Founder Group – would directly share in the growth from the new entity. Inflexionpoint, based in Singapore, is large with revenues within the billion-dollar range. And contains ambitious plans.

Stuve said the “structure” generates financial savings to Pivot and those savings “are being forwarded to the new public shareholders by means of increased distributions.”

Some shareholders, who bought Pivot on its growth prospects, are concerned the Founder Group can redeem the preferreds anytime. Stuve said in the event that happened, the pref holders could be removed at a premium cost of $0.70 – “a significant bump for all of us to consider it to shareholders.”  

bcritchley@nationalpost.com