Will ‘closer scrutiny’ stop sale?

Francisco wins bidding war for Sandvine

The bidding war is over, but the regulatory fun could be about to start.

On Monday, Ontariobased Sandvine Corp., which provides “network policy control solutions,” agreed to be acquired by San Francisco-based private equity firm Francisco Partners for $4.40 share in a $562-million transaction.

Francisco, whose portfolio has included about 80 investments, won the contest for Sandvine after the previous suitor, Vector Capital, chose not to match its final bid.

Vector had offered $4.15 a share — an offer accepted by the company — before Francisco upped the ante to $4.40. Vector had until last Friday to match. But Vector, also a Bay Area private equity firm, won’t walk away emptyhanded: it stands to receive a $16.9-million break fee.

As a result of all the weekend action, the shareholders’ meeting planned for Tuesday to vote on the original $3.80 offer from Vector has been cancelled. A new date will now be set for the vote on the offer from Francisco, which plans to merge Sandvine with one of its existing portfolio companies, Procera Networks Inc., when the shareholders give the go-ahead.

But Ronald Deibert, the director of the Citizen Lab at the Munk School of Global Affairs at the University of Toronto, has argued that the takeover requires “closer scrutiny” by the federal government, largely in light of some of the activities done by two of Francisco’s portfolio companies.

In that recent interview, conducted before Francisco was declared the winner, Deibert said he was concerned that Sandvine would be drawn into the orbit “of the shady underworld of state espionage.”

“That would put a black mark on Canada’s reputation,” he said at the time.

Reached Monday, Deibert said that he found it “troubling” that Sandvine, a company with “such an extensive international reach and with powerful technology, is being acquired by an ownership group that has shown a demonstrated lack of concern for the abuse of its affiliates’ products and services, specifically that of the (Israel-based) NSO Group.”

Deibert, whose researchers have unearthed some of those alleged human rights abuses — which have then been reported upon by journalists at The New York Times and Forbes — said it was “also disturbing, that Sandvine will be merged with Procera Networks, which was implicated in Turkey’s mass surveillance program.”

When those articles appeared Procera said that it “strongly supports core principles of human rights and dignity for people around the world. We provide technology that helps telecom operators run their businesses more efficiently and enhance their customers’ user experience. We do not provide technology for surveillance.”

For his part, if and when the takeover is approved, Deibert said that the expectation is that “we at Citizen Lab will have much work ahead of us.”

Such concerns were furthest from the mind of all participants Monday. In a release Procera said that it looks “forward to bringing the best of both companies together to accelerate our strategy as the pre-eminent provider in the emerging Network Intelligence market.”

One shareholder, Stephen Takacsy, chief executive and chief investment officer at Montreal-based Lester Asset Management is also pleased with what he calls a “good price,” one that is “close to intrinsic value.”

Takacsy also mentioned his satisfaction that, “in the end, (the sale process) turned into a competitive process and that fair value is being realized through a group that includes a strategic buyer.” Along with “several other institutional shareholders,” Lester voted against Vector’s original offer “to send a strong message that it was inadequate.”

In trading Monday, Sandvine, whose shares hit $4.49 last week, closed at $4.35 on 15 times normal volume.