NEW YORK, May 19, 2014 /PRNewswire-USNewswire/ -- On
April 23, 2014, in response to the
proposed buyout of DFC Global Corp. ("DFC" or the "Company") by
Lone Star Funds ("Lone Star"), Royal
Capital Management, LLC ("Royal Capital", "we" or "us") issued a
press release (the "Original Press Release") containing a letter
sent to the Board of Directors of DFC (the "Board") outlining its
intention to vote "AGAINST" all proposals at the upcoming Special
Meeting of Stockholders. The letter further highlights Royal
Capital's perception of deficiencies in the sale process undertaken
by the Board and the resulting woefully inadequate proposed sale
price.
Subsequent to our press release, we have spoken to many of the
Company's largest stockholders, the vast majority of which are in
support of the analysis contained in the Original Press Release.
Since the date of the Original Press Release, DFC stockholders have
further learned that:
i. In DFC's most recent quarter ended March 31, 2014, the Company generated net cash
flows of $56.2 million and now has a
total of $236.9 million in cash and
cash equivalents, amounting to nearly two-thirds of the total cash
consideration to stockholders from the proposed buyout.
ii. Cheque Centre, the second-largest High Street payday
lender in the U.K. and DFC's largest store-based lending competitor
in the U.K., with 451 stores (compared to DFC's 594), has been
forced to exit the U.K. payday loan market under pressure from the
FCA for non-compliance.
iii. DFC's largest public internet lending competitor in
the U.K, Cash America, faces significant regulatory related
expenses on top of existential operational risk under the new FCA
regime; justifying the upfront costs which DFC investors have
already made in anticipation of the new regulations.
In summary, the U.K. regulatory evolution is playing out exactly
as DFC's management stated it would and exactly as, if not more
rapidly than, it had previously played out in Canada; all of which benefits
DFC. The Board has set the final vote date for June 6, 2014, we believe, in an effort to swiftly
finalize the proposed buyout before the true value of the business
is revealed in the midst of a rapidly consolidating U.K. consumer
lending market.
The Board has not responded to the letter contained in the
Original Press Release and Royal Capital continues to search for
any rational explanation of how the proposed buyout benefits the
Company's current stockholders. We request that the Board address
the following questions:
i. Why did the Board approve Lone Star's reduced price offer of $9.50 per share, in comparison to a $12 per share offer made just 24 days earlier,
when management's "revised" five-year financial forecast barely
changed? The revised "March Forecast" projects a June 30, 2018 Earnings Per Share ("EPS") of
$3.99, only 8
cents below the original $4.07
EPS projected in the "February Forecast".[1] Perhaps
more importantly, how does the financial forecast change now that
Cheque Centre, DFC's largest store-based lending competitor in the
U.K., has been forced to exit the market?
ii. Why does DFC overstate the Company's actual
upcoming debt maturities of $156
million by an additional $230
million in the proposed transaction proxy? "In
addition to the 2016 Notes, we have outstanding approximately
$386 million of debt that either
matures, or is redeemable by its holders, within the next
2 1⁄2 years." However, if the proposed buyout is not
approved and there is no change in control, only $156 million of the Company's debt matures, or is
redeemable by its holders, within the next 2 1/2 years, of which
only $36 million is due before
April 2015.[2]
iii. Why does the Company continue to allude to
a "need" to refinance their 2016 Notes when this solely represents
an opportunistic refinancing in which current stockholders will not
participate? "In order to maintain our liquidity and grow
our business with our current capital structure, we will need to
refinance this debt." Royal Capital questions how a potential
interest expense reduction on the 2016 Notes of approximately
$12 million per year (estimating a
200 bps savings) is vital to DFC's liquidity. In the context of
DFC's $134 million in available
credit, $236.9 million in cash and
cash equivalents and over $495
million in gross outstanding short term loans[3],
we believe this position to be odd and overstated. Even DFC's own
"revised" financial forecast projects a minimum of $178 million in annual EBITDA for FY2015, growing
to $350 million by mid-2018, which is
more than sufficient to service the Company's current annual
obligations of approximately $80
million in cash interest and $20
million in maintenance CapEx. Even if DFC wanted to
refinance the 2016 Notes, we believe it could do so given the
strength of its cash flows.
iv. In accordance with the Board's fiduciary
duty to stockholders, has it considered alternative options that
would not force public stockholders to forego the
significant upside inherent in the Company's business? Has the
Board analyzed the potential stockholder benefit from a spin-off of
the internet lending platform or a rights offering? For example, a
mere $100 million rights offering
would provide additional growth capital to help bridge the gap to a
June 30, 2018 EPS of $3.99 and would allow each stockholder to decide
the degree to which he or she is willing to mitigate the dilution
by participating on a pro-rata basis.
In the best interest of DFC's current stockholder base, our
intention is to vote "AGAINST" Proposal #1 (the proposed
buyout as it stands today). We also intend to vote "AGAINST"
Proposals #2 (the advisory vote regarding change in control
payments for members of DFC management) and #3 (the proposal to
permit adjournment of the special meeting to solicit proxies if
insufficient votes are received to approve the proposed buyout at
the special meeting).
Royal Capital encourages all stockholders to review the Original
Press Release and is happy to discuss our views with any other
stockholders. The Original Press Release (including the letter to
the Board) can be accessed at:
http://www.prnewswire.com/news-releases/royal-capital-issues-letter-to-dfc-global-corp-board-of-directors-256342841.html
This is not a solicitation of authority to vote your proxy.
Please DO NOT send us your proxy card; Royal Capital Management,
LLC and its affiliates are not seeking or able to vote your
proxies, nor does this communication contemplate such an event.
Royal Capital Management, LLC and its affiliates urge stockholders
to vote "AGAINST" all proposals at DFC Global Corp.'s upcoming
Special Meeting of Stockholders by following the instructions
provided on management's proxy mailing.
[1] EPS calculated on current share count.
[2] $230 million of DFC's
$388 million in convertible debt
matures in April of 2017.
[3] Calculated as sum of gross Retail-based Consumer
Loans ($191 million), Internet-based
Consumer Loans ($148 million) and
Pawn Loans ($156 million) as of
3/31/14.
SOURCE Royal Capital Management, LLC
