Managers go mano a mano
Round one between hedge fund managers Goodwood Inc. and GuestLogix Inc. is over. Both sides have returned to their corners preparing for round two in a battle that may go to 15 and occupy the combatants’ attention till June 30 2015. Between now and then there’s lots of potential for wild punches, counter-punches and possibly final knockdowns.
Goodwood is a determined fighter, an activist with big wins under its belt. For instance, in 2012 it launched successful challenges at Longford Energy Inc. and Dacha Strategic Minerals Inc.
Along with its largest shareholder, Chicago-based Kabouter Management LLC, Goodwood is fully supportive of GuestLogix’s most recent acquisition, the US$41.2 million acquisition of Dublin-based OpenJaw Technologies Ltd. Kabouter referred to the deal as “very accretive” and game-changing “because it creates the world’s first and only complete ancillaries platform, capable of everything from provisioning and merchandising to transacting. Most interestingly, though, there is an enormous cross-selling opportunity that the market is overlooking.”
What Goodwood doesn’t like is the slowness with which GuestLogix is approaching the big opportunity, the so-called airline industry ancillary revenue business. By the year 2020, GuestLogix estimates that business could grow by an additional US$130 billion. Profits from those activities have been a key underpinning of airline profitability. GuestLogix has key relationships with Panasonic Avionics Corp. and Thales Group, which have more than 80% of the world’s in-flight entertainment systems, and an exclusive with NCR, a leading provider of airport kiosks. GuestLogix gets a small fee from each transaction.
And Goodwood has a simple message. It wants to strengthen GuestLogix’s board, its ability to execute, and “its credibility.”
It has proposed that three of its nominees be made directors at GuestLogix, including a new chairman, Arthur Mesher, the former chairman and chief executive at Descartes Systems. Some would argue that’s a big demand for a shareholder who, at the time of the demand, owned about 4% of the company. But that stake may have risen, because when Goodwood made its claim last week it said that it “may, from time to time, cause investment funds and/or accounts managed by it to purchase additional common shares of GuestLogix.” Last Friday when Goodwood went public, volume was 10 times normal.
This week GuestLogix gave its reply. It said it viewed the Goodwood involvement as “a disruptive contest to our set objectives [which] would be counterproductive at this time,” adding that it was making “enhancements to the board.” GuestLogix noted that it has already added two independents to the board, both of whom have substantial airline industry, retail technology, strategic, operational and M&A experience.”
And, as part of a plan to control the composition of the board (rather than be dictated to), it plans to recruit at least one, but possibly two independent directors, who have experience in “Canadian capital markets.”
That’s probably a good thing because the market didn’t like the way the OpenJaw acquisition was financed — a combination of subscription receipts (at US$0.95 a receipt) and 7% convertible debentures — or communicated to the shareholders.
The talk is that when the financing closed, the underwriters were left with a ton of unsold stock, which presumably explains why the shares traded below US$0.60 last month. They closed Tuesday at US$0.81.