Common sense to the rescue
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.