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The war of words between Torrent Capital, a significant shareholder in Pivot Technology Solutions, and also the company about how better to proceed considering a proposed going private transaction continues.
Torrent fired the latest salvo this week C the 3rd it’s made since Pivot announced its share exchange transaction fourteen days back. Torrent said it represents the interests of holders of approximately 12.2 per cent from the company.
Torrent’s statement was made a few days after Pivot provided “further clarification” on its “share exchange transaction,” which will, provided shareholders agree, hand control of the company to a group of insiders, with the rest from the shareholders slated to own preferred securities that are set to pay higher distributions than are actually paid out on the common shares.
That transaction is becoming controversial for a number of reasons, including:
The extent to which Pivot searched for alternatives either before or after the so-called Founder Group (the insiders) lobbed its proposal at the begining of this past year. In its statement, Pivot said although it held discussions with three investment dealer firms, it “elected not to participate in a formal tactic to seek potential alternative transactions, because it was considered unlikely that the superior proposal would materialize;”The plans for a “private” Pivot. When the deal is approved, Pivot will sign a consulting agreement with Inflexionpoint, a personal company founded by some of the identical individuals who founded Pivot. Pivot said the proposed consulting agreement can offer US$1.5 million annually, will run for Ten years and “provides additional cushion with regards to the proposed distributions around the Preferred Securities.”
In its latest statement Torrent has replaced its previous stance of “vehemently” opposing the transaction, having a six-point alternative plan. Although it still believes the proposed transaction “blatantly short changes Pivot shareholders towards the advantage of a select few insiders,” it believes its plan would benefit all shareholders.
Related
- Shareholders increase pressure on Pivot Technology to pull dealPivot Technology’s proposed takeover by founder’s group draws lots of flak
Its proposals include: maintaining the present capital structure (which it argues gives shareholders a mix of income and potential capital gain); upping the dividend (to $0.054 a share from its current $0.03 a share, a do-able event given Pivot’s cash flow. Pivot started paying a dividend twelve months ago.); conducting a strategic review along with a formal valuation (a jump up from the fairness opinion conducted on its proposed transaction); conducting a review to ensure executive compensation is “properly aligned with certain performance metrics such as revenue growth, margin expansion and increased profitability;” and moving the listing to the TSX from the TSX Venture (Pivot, which generates more than US$1.5 billion in revenue, became public in 2013 when it merged with a TSX-V listed capital pool company Acme Capital Corporation).
Torrent’s final request was for Pivot to provide “clarity” on its international expansion plans. Torrent would like to know how the proposed contract with Inflexionpoint will “impact” profitability and growth prospects. Torrent argues shareholders “would potentially take advantage of international growth and expansion, but in light of the numerous conflicts of interest, greater transparency and disclosure is required.”
So what’s next?
It’s a waiting game. Normally Pivot would make a circular for that upcoming shareholder meeting. But given the opposition, circumstances might not be normal: Indeed Pivot needs to judge the probability of success of advancing its proposed deal versus abandoning the program and listening to its shareholders. To win, Pivot needs overall support from two-thirds of those that vote as well as the most of the minority.
bcritchley@nationalpost.com
