Last week we announced our intention to bid to buy Radiant Communications Inc., if you have not seen the press release it is here:
There has been some interesting press on this, it is located here:
Let me share a bit of an ‘insiders’ perspective. First off, I have made it undoubtedly clear that I am not a fan of acquisitions. I want to build and operate a company that has been organically developed, similar to that of Frontier’s own network. Frontier is far from a “start-up” project, however, it is nice to not have to worry about integrations, tuck-in’s, staff, and product consolidations.
There are many examples of companies in our space that, in our opinion do not get it right. For example:
- Bad billing practices (I have previously referred to this point)
- Terrible (or horrible) service (Customer who?)
- Weak / Technologies – or old networks that have not been properly updated or re-invested in (firms who divested, often to private equity and continue to pull all the profits out of the company and cease investing in the core infrastructure)
- Weak product lines (customer needs change, solutions must evolve)
- Uninspiring management – IE: a room full of bankers or lawyers, vs. technology talent and innovators (not that bankers and lawyers are not innovating ….)
Radiant presented a rare opportunity for acquisition, Frontier would like to take advantage of that opportunity.
One of the worse kept secrets was that Radiant had been hunting for someone to purchase the company. We at Frontier decided that purchasing Radiant would be a smart move: both companies operate within the sale realm of business, both companies have the same customers, etc. We at Frontier dabble more on the voice and physical colocation side of things, and I believe we have a more ubiquitous network and offer some pretty neat services like VDSL and Ethernet over Cable that most competitors do not. We also hold more international business.
A few years ago at Radiant, most of the senior management left and have since been replaced with ‘people’ from the various private equity firms that own pieces of them.
Seems harmless and easy?
Putting an offer up to buy a public company is relatively simple (e specially one that would like to be sold). First, you need to understand the layers, comparable to the layers of an onion:
- Shareholders – a group of nice people to take their hard earned money and invest it in a business (by buying shares of the business). Sometimes the owner can be an investment group or private equity organization (in the case of Radiant, you have Maxum, Pender and Perlus as large individual investors who hold the shares on behalf of their own investors)
- Independent Committee – A group of people assembled by the board of directors who are to act independently so as to evaluate the company’s objectives and acquisition opportunities
- Board of Directors – body of elected or appointed members who jointly oversee the activities of such company including the capitalization of the business
- Executive Management – The day to day management (president, VP’s, CFO and other people paid to act as a fiduciary of the business). They are there to service the needs of the customers and shareholders
It was far from easy
At various points in 2012, we approached Radiant Board Members, Management, CFO, as well as anyone who remotely resembled “the right person to talk to”. This of course was before the lock up agreement was announced. I ran a report in our CRM (which logs activities) and I looked at the email, call, and now letter trail and it was obvious that we had been ignored.
Then they announced their Privatization Deal with Maxum
We were surprised by this announcement, as we thought if Radiant wanted to sell, why not call us back? We were especially puzzled by the role of the Independent Committee at this point, as it would seem their main duty to guide and direct the company to the most profitable acquisition deal, we ask ourselves again, why were we not contacted? Mildly agitated letters turned to cranky phones calls, and eventually evolved into legal counsel and representation. It was not until the National Post covered the story in one of their articles that we at Frontier received a reply from Radiant regarding our offer. It is not clear whether our legal representation or national news coverage garnered the response, either way, we got their attention.
We sit now with an opportunity to take over a minority position at Radiant, as the majority has been locked up. For now the shareholders have been notified by the Independent Committee’s counsel that Frontier holds the superior bid:
On April 22, 2013, the special committee of independent directors of Radiant that has been established to evaluate the Transaction (the “Independent Committee”) received a written acquisition proposal from Frontier Networks Inc. (“Frontier”) to make a takeover bid for any or all issued and outstanding common shares of Radiant (“Common Shares”) at a price of $1.00 per Common Share in cash (the “Frontier Proposal”). Based on a review of the Frontier Proposal, the Independent Committee has concluded that the Frontier Proposal constitutes a “Superior Proposal” under the terms of the Arrangement Agreement, pursuant to which the Arrangement is being proposed.
The Purchaser, Maxam, now has until April 30, 2013 to amend the Arrangement Agreement leaving our proposal to cease as the Superior Proposal.
I am feeling kind of ‘oppressed’ at the moment
In corporate law, an oppression remedy is a statutory right available to oppressed shareholders. It empowers shareholders to bring an action against the corporation in which they own shares when the conduct of the company has an effect that is oppressive, unfairly prejudicial, or unfairly disregards the interests of a shareholder.
Currently, Frontier owns approximately 1.1 million shares that have been purchased in anticipation of this acquisition. The thinking is that we will save ourselves a few hundred thousand dollars buying the shares up at $0.85 before our bid takes over a $1.00 per share (we may need the pocket money for litigation). We are not just playing with shares. We are spending real money, and want to play by the real rules.
I wonder …. on the topic of oppression
Were Perlus and Pender made aware that Frontier expressed multiple levels of interest in this transaction? Why did they agree to a lock up with Maxum for the proposed $0.85 when Frontier is offering $1.00. Also, did the Independent Committee act ‘independently’ while seeming so outwardly focused on rubbing stamping the Maxam deal as quick and dirty as possible? We can’t forget about the investors, smart money-mind folk, who we would all expect to act vigilant towards an opportunity to increase profit.
The Valuation report, or lack thereof.
During this process, in order to ascertain the value of Radiant, the Independent Committee solicited and paid for a ‘fairness opinion’ from Evans & Evans, Inc. This presumably was funded with Shareholder Capital (investor money).
Now, I am not a business valuation expert. However, I would think that one way to test the value of an asset would be to ask people what they are willing to pay for it? No? To quote the guys at Investorline this was a “sweetheart deal” for the controlling shareholders. The offer implies Radiant Communications has an enterprise value of under $6 million and is worth less than three times EBITDA or only 18% of its annual revenues (Cogeco Cable is buying Peer 1 Network Enterprises for 12.6x EBITDA.,
The valuation report did note at least one other company who put in a bid to acquire the company. The word out was it lacked the necessary funding to close, or operate the business. I think I know who it was. Nice guy, never met him, drives a fancy used Porsche (should sell it and invest back into the business though).
For the record, a Tesla is much cooler than a Porsche. But I digress.
Qualified buyer checklist
In order to be certified as a ‘qualified buyer’, you have to follow a check list.
Here it is.
Question 1 – Do you have the funding available at the time of the transaction to fund the value of the acquisition, and a reasonable allocation of capital for follow on expenses?
Yes / No.
In our case, once we received ‘superior bid’ status. This is because we simply called the bank and within 15 minutes, generated a letter that confirmed that we have not only the capital for the minority, but for the entire share offering on available cash on hand (not credit or a standby agreement – actual cash). Remember that our bid is for ‘any and all’ available shares.
Best to play by the rules.
There are two types of companies: Public and Private. Public is easy, there is a process. There is management, a board of directors and shareholders and lots of rules that say things like ‘be transparent’ and ‘do the right thing’.
Just when you thought it was weird enough…
If you are a fan on conspiracy novels check out this. Last week, I called both Pender and Perlus, nice guys. I asked two quick questions.
First Question: Have you heard of me? Answer of course was ‘yes’. Makes sense since I am in the middle of a not very friendly bid to buy out their company.
Second Question: A bit more complicated. Have you heard of me prior to this? (specifically referencing the attempt to offer a bid in 2012).
I then said, “do you think that if Frontier had approached the Board with an interest to buy Radiant, you would have the right to know? More specifically, would you have been quick to enter into a ‘lock-up’ arrangement with Maxum (a board member who I spoke with) at $0.85 per share when I am clearly offering $1.00?”
It was a rhetorical question.
Less than a day later this happened:
So… why cancel their deal?
And then, this happened:
Perlus and Maxum re-did their deal at 99.5 cents per share.
But wait, there is more.
Pender seems to have bought the remaining shares and is no longer partnered with Maxum, it seems to be standing independently.
What I do know is that these guys are board members, the stewards of independence for the company and the advocate for the shareholders.
If nothing else, I am pleased to announce that I made them all $0.15 per share in a week on a stock that had more volume in a day than it had for the entire month of February.
Who knows, it is truly exhausting.
And here is an update ….
More news, in case it was not already confusing to everyone, Don Calder has resigned.
The Chair (I think) of the special committee resigned not from the special committee but from the Board of Directors.
Mr. Calder has been a Director of Radiant since February of 2005 and Chairman of the Board since August of 2007 and was part of the special committee who was in charge of managing the Frontier-Radiant bid. I should note that he was part of that not very responsive team.
With resignation of Calder, Sam Ketcham is now the only member of Radiant Communication’s Independent Committee which is overseeing the pending acquisition proposal from Frontier Networks.
Should be an interesting few weeks.
My favorite part of this whole thing? We had to rush a press release out the door announcing this deal but now we have a snazzy new ‘about Frontier’ statement.
Frontier Networks Inc. is headquartered in Toronto, Ontario and provides broadband, voice, cloud servers and colocation to Canadian Retail and Multi Site customers who demand world-wide coverage from a ‘new’ network. Our management and operating team is loaded with industry specialists and our network is truly high-speed and adaptive to properly support the requirements of customers who wish to reduce costs substantially by combining their broadband and voice services onto one, lower cost, network. We have the highest density of regional Points of Presence available and offer a 100% coverage policy. Simply put ‘we don’t suck.
Side note: I think we are the only company in history to use ‘we don’t suck’ on a newswire.
And one more thing….
I am exhausted. Glad it is Saturday. On Monday, I am going to Vancouver. Not sure who I am meeting with, I had meetings set up and the meetings have since been cancelled, all within the same 24 hour period.
Perhaps I might have some time on my hands on Monday, perhaps a wine tour of the Okanagan, lovely place.