Covisint Issues Response to Dialectic Capital Management LLC’s Letter to Shareholders
21 July 2017 - 11:20PM
The Board of Directors of Covisint
Has Recommended Shareholders Vote "FOR" to Approve
the Sale of Covisint to Open Text
Covisint Corporation (Nasdaq:COVS) today responded to Dialectic
Capital Management LLC’s (“Dialectic”) July 19, 2017 letter to
Covisint’s shareholders wherein Dialectic announced its intention
to vote against OpenText’s™ (NASDAQ:OTEX) (TSX:OTEX) acquisition of
Covisint.
In recommending that Covisint shareholders vote “FOR” the Open
Text Merger Agreement, Covisint issued the following statement:
Many of the assertions and analyses in the Dialectic letter are
inaccurate or otherwise do not properly portray Covisint’s current
business prospects. To cite a few:
- Dialectic asserts that the Company should not be sold
having just recorded its first profitable quarter.
This statement is misleading. In Q4 fiscal
2017 the Company reported Non-GAAP Net Income of $2.6 million.
The majority of the Non-GAAP Net Income was the result of a
one-time reversal of a bonus accrual that was accrued (and not
awarded) in prior quarters due to poor performance in such
quarters. The Company’s quarterly EBITDA would have been
about break even if the bonus accrual reversal was
excluded.
- Dialectic asserts that the proposed merger
consideration is inconsistent with the Company's inherent growth
prospects. This statement is inaccurate and does not
take into account that the Company has fallen short of its revenue
targets and bookings objectives in each of the last four fiscal
years, despite changes to market focus, product innovation and
changes to company personnel, including the addition of three new
members to the Board of the Company within the last year.
In considering growth prospects for the Company that would
likely increase shareholder value, the Board asked the Company’s
management to prepare a Sensitized Case set of projections (as
discussed in detail in the Company’s Proxy Statement) for analysis
and discussion. The Company’s growth prospects under various
scenarios, including under the Sensitized Case approach, was
thoroughly discussed by the full Board on multiple occasions, with
input from the Company’s financial advisor, as well. Numerous
factors were discussed and considered, including how a Sensitized
Case approach might adversely impact the Company’s customer
base. Considering and debating a Sensitized Case set of
projections was a useful exercise, as it confirmed that pursuing
that approach was not a realistic strategy for the Company.
The downside risk with such an approach far outweighed the
potential that the Company could achieve the results and the Board
unanimously voted to proceed with the proposed transaction.
- Dialectic cites valuations that are based on
unrealistic scenarios and ignore the market
realities. An extensive sale process that saw more
than 52 strategic and financial acquirers considering the
acquisition of Covisint yielded a price that the market is willing
to bear for the Company. The merger consideration of $2.45
per share approved by the Board after receiving bids from only four
potential buyers, represents a premium of approximately: --
23% to the closing price per share of the Company’s common stock on
June 2, 2017; -- 27% to the volume-weighted average trading
price per share of the Company’s common stock for the 30-day period
ending on June 2, 2017; and -- 46% to the cash-adjusted price
per share of the Company’s common stock for the 30-day period
ending on June 2, 2017 (the cash-adjusted calculation deducts the
Company’s cash and cash equivalents of $33 million, or $0.79 per
share, as of March 31, 2017, from both its current share price and
from the total value of the merger consideration in order to better
measure the premium being offered).
The $2.45 price per share was the result of a very lengthy and
very broad sales process, wherein the Company and its financial
advisors contacted (or were contacted by) a total of 52 potential
bidders, both financial and strategic. The Company used
high-quality, internationally recognized financial advisors to
guide the Company through the process and to negotiate the highest
price per share that a potential acquirer was willing to pay.
While there were discussions and meetings with other
potential third party acquirers over a period of more than 15
months, other than Open Text, those potential acquirers
definitively indicated that they had either determined not to
pursue a transaction to purchase the Company or they were not
willing to offer a purchase price at or above $2.45 per share.
The $2.45 per share all-cash merger consideration provides the
Company’s shareholders with certainty of value and immediate
liquidity, while reducing the market and long-term business risks,
including risks related to the Company’s historical operating
results and future growth prospects.
- Dialectic asserts that the Company resisted efforts by
shareholders to improve the Company. This statement
is just false. Within the last year, the Company appointed
Messrs. John Smith, Andreas Mai and Jonathan Yaron as directors to
the Company’s Board as a result of negotiations with activist
investors (including Dialectic). It is important to note that
these new directors were involved throughout the strategic review
process undertaken by the Company, and, with the other members of
the Company’s Board, unanimously voted in favor of the sale of the
Company to Open Text. In addition to adding new board
members, the Company and the Board made efforts to improve the
Company throughout the year, including significantly reducing the
Company’s cost run-rate by $15 million, or nearly 20%, with the
objective of cash flow breakeven in fiscal year 2018.
However, there was little revenue growth obtained from those
efforts.
- Dialectic asserts that a "maximum cash/go-it-alone"
business plan would produce more value for
shareholders. Dialectic offers this statement with
no credible support. The Company's Board and senior executive
management team discussed extensively numerous strategic options
for the Company, including the strategy favored by Dialectic.
However, the strategy proposed by Dialectic necessarily
reduces investment in research and development in the Company’s
products to near zero, and existing customers would begin to look
for alternative suppliers, making the top- and bottom-line of the
"max cash" strategy wholly unrealistic for a publicly held
company.
- Dialectic asserts that Open Text indicated that the
acquisition of Covisint would be 2% accretive. Open
Text made no such statement.
In addition, Covisint announced that Institutional Shareholder
Services (“ISS”), Glass, Lewis & Co. (“Glass Lewis”) and
Egan-Jones recommend that Covisint shareholders vote in favor of
the merger.
Covisint’s upcoming Special Meeting is important in delivering
the best outcome for our shareholders. Covisint shareholders of
record as of the close of business on June 15, 2017 are entitled to
vote at the Special Meeting.
The Covisint Board’s unanimous recommendation is that
you vote "FOR" the Proposal to Approve the Sale of the Company to
Open Text for $2.45 per share.
We thank you for your continued support of Covisint and hope you
will attend Tuesday’s Special Meeting.
Regards,
/s/ John F. Smith
John F. Smith, Chairman of the Board of Directors
About Covisint Corporation
Covisint is the connected company – we securely connect
ecosystems of people, systems and things to enable new service
offerings, optimize operations, develop new business models and
ultimately enable the connected economy. Today, we support
more than 2,000 organizations and connect to more than 212,000
business partners and customers worldwide. Learn more at
www.covisint.com.
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Safe Harbor for Forward-Looking Statements
This press release contains forward-looking statements,
including statements regarding Covisint’s present and future
technology design, architecture, performance and operations which
affects the Covisint IoT Platform’s market growth and the demand
for Covisint’s solutions. Any forward-looking statements
contained in this press release are based upon Covisint’s
historical performance and its current plans, estimates and
expectations and are not a representation that such plans,
estimates, or expectations will be achieved. These
forward-looking statements represent Covisint’s expectations as of
the date of this press release. Subsequent events may cause
these expectations to change, and Covisint disclaims any obligation
to update the forward-looking statements in the future except as
may otherwise be required by the federal securities laws.
These forward-looking statements are subject to known and unknown
risks and uncertainties that may cause actual results to differ
materially. Important factors that could cause actual results
to differ materially from those in the forward-looking statements
include, but are not limited to, Daimler’s ability non-renew the
purchase order or to terminate our contract for convenience.
Further information on potential factors that could affect actual
results is included in Covisint’s reports filed with the SEC.
Investor Relations Contact
866-319-7659
investors@covisint.com
Media Contact
Brad Schechter, Vice President, Corporate Marketing
248-483-2097
bschecht@covisint.com
For Sales and Marketing Information
Covisint Corporation, 26533 Evergreen Road, Suite 500, Southfield, MI 48076, 800-229-4125
http://www.covisint.com
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