Com­mon sense to the res­cue

National Post (Latest Edition) - - FINANCIAL POST - Barry Critch­ley Fi­nan­cial Post bcritch­ley@na­tion­al­post.com

It took awhile, but in the end com­mon sense won out: TSX-Ven­ture- listed Pivot Tech­nol­ogy So­lu­tions and t he Founder Group aren’t pro­ceed­ing with their heav­ily crit­i­cized pro­posed plan of ar­range­ment.

In that plan, share­hold­ers other than the Founder Group were be­ing of­fered higher yield­ing pre­ferred se­cu­ri­ties in ex­change for their com­mon shares. No cash was of­fered.

Plans called for the pri­vate Pivot to then sign a 10- year con­sult­ing and rev­enue-shar­ing agree­ment with In­flex­ion­point, a pri­vate com­pany that has an over­lap of per­son­nel with the Founder Group. Pivot said the con­sult­ing agree­ment was nec­es­sary to help fund the dis­tri­bu­tion on the pre­ferred se­cu­ri­ties.

Share­hold­ers and an­a­lysts dis­liked the deal be­cause the price be­ing of­fered was too low ( one an­a­lyst es­ti­mated the “pub­lic” Pivot was worth twice what share­hold­ers were be­ing of­fered), be­cause there was no auc­tion to can­vass po­ten­tial buy­ers and de­ter­mine the right price, and be­cause the trans­ac­tion favoured the Founder Group, which was aware of what a con­sult­ing and rev­enue shar­ing agree­ment could gen­er­ate for the “pri­vate” Pivot.

Doug Stuve, chair­man of the spe­cial com­mit­tee put to­gether to as­sess the of­fer from the Founder Group said that “based on var­i­ous fac­tors, in­clud­ing feed­back from our share­hold­ers, the board and the Founder Group de­ter­mined that it was in the Com­pany’s best in­ter­est not to pro­ceed with the trans­ac­tion.”

But share­hold­ers, who would most likely have voted down the pro­posal, were thrown a bone: They will re­ceive a higher div­i­dend start­ing with the se­cond quar­ter. Now they will re­ceive $0.01 a quar­ter — or $0.04 a year — up from a pre­vi­ous $0.03 per share per year. Pivot started pay­ing a div­i­dend in March 2015.

Tor­rent Cap­i­tal was one of Pivot share­hold­ers most op­posed the trans­ac­tion. Scott Gard­ner, the firm’s founder and man­ag­ing di­rec­tor said Wed­nes­day his firm was “pleased they have pulled this poorly con­structed deal that from the out­set was clearly out­side the best in­ter­ests of the com­mon share­hold­ers. It’s un­for­tu­nate the process has shaken con­fi­dence in the board and in man­age­ment.”

Dur­ing the process, Tor­rent has put to­gether its own pro­posal for the com­pany. “What’s both­er­some is the lack of in­for­ma­tion pro­vided to com­mon share­hold­ers through­out the process,” adding “when deal­ing with an in­side bid, there has to be a higher level of in­for­ma­tion dis­sem­i­na­tion.”

For its part, Pivot an­nounced the pro­posed trans­ac­tion at the end of Jan­uary and pro­vided an up­date a cou­ple of weeks later. Tor­rent made three re­leases while the pro­posed trans­ac­tion was live.

Tor­rent, which has a six­per- cent stake and which spoke for a num­ber of other share­hold­ers, is still a firm be­liever in the com­pany that gen­er­ates more than US$1.5 bil­lion in an­nual rev­enue. Gard­ner calls Pivot “a tremen­dous com­pany that con­tin­ues to be un­der­sold by man­age­ment and the board and we look for­ward to tak­ing ac­tion and cre­ate value for share­hold­ers.”

Ralph Garcea, an an­a­lyst with Can­tor Fitzger­ald is­sued a note Wed­nes­day that high­lighted a num­ber of unan­swered ques­tions in­clud­ing: whether the list­ing would be moved to the TSX; what is the sta­tus of the nor­mal course is­suer bid; and what is the sta­tus of the con­sult­ing con­tract with In­flex­ion­point.

Garcea, the only an­a­lyst cov­er­ing Pivot, urged man­age­ment to fo­cus “on the ac­tive growth not com­pla­cency,” ap­proach favoured by Tor­rent.

Pivot closed Wed­nes­day at $0.51.

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