US private equity firm Vector Capital has quickly responded to JP Morgan’s increased offer for a stake in French audiovisual group and STB maker Technicolor by upping its own offer.
Vector has raised the subscription price of the shares to be issued…
US private equity firm Vector Capital has quickly responded to JP Morgan’s increased offer for a stake in French audiovisual group and STB maker Technicolor by upping its own offer.
Vector has raised the subscription price of the shares to be issued under the reserved capital increase from €1.9 to €2.0, increasing proceeds from the share issue to between €167m and € 191m, compared to between €162m and €186m in the initial offer.
Vector is seeking to acquire approximately 17.5% of the company via the capital increase. It then intends to participate in a rights issue at €1.56 per share that would enable it to amass a holding of no more than 30%.
The proposal, which Vector will submit to the Technicolor shareholders’ meeting on 20 June, comes just five days after JP Morgan Chase amended its offer to bring it in line with Vector’s original bid.
Via its investment vehicle Jesper Cooperatief, JP Morgan submitted a modified offer to Technicolor on 8 June that increased the subscription price of the shares in the reserved capital increase from €1.6 to €1.9 per share.
As with the Vector plan, Jesper would then undertake a €1.56 per share rights issue to existing shareholders that would give it a final stake of between 25% and 29.96%. The Jesper rights issue would be smaller than the Vector one.
The Technicolor board have yet to comment on Vector’s modified bid, although it recommended to its shareholders that it reject the sponsor’s original offer. The board also rebuffed Jesper’s amended offer in favour of the investment vehicle initial proposal despite the higher price.
The board said the reason for this was that while it offers more money, Jesper’s amendments add new terms that are unfavourable to the company. These include a break-up fee and a new condition making the offer subject to no equivalent resolution, such as the Vector plan, being put to the vote at the general shareholders’ meeting.
Technicolor pointed out that under French law, it is obligated to put any shareholder resolution, including Vector’s, to a vote. As such, Technicolor argues, the condition would have made the commitments under Jesper’s amended proposal less certain than in the original offer. To that end, the board concluded that it would continue to recommend the initial Jesper proposal.
In response, JP Morgan sought to address the points made by the Technicolor board. The company stated: “The amended resolutions in the revised proposal simply provide for the Vector resolutions and the JP Morgan resolutions to be mutually exclusive in all cases.
“There is therefore no difference in the certainty of the JP Morgan deal under the revised proposal. It does not prevent the shareholders of Technicolor from having the ability to consider all proposals submitted to them.”
In addition, JP Morgan argued that the break-up fee of €3.4m, representing 2% of the maximum transaction value, would not be triggered by a successful completion of the Vector proposal.
For it part, Vector has argued that the amended JP Morgan offer is ‘neither economically superior nor in the best interests of shareholders.’
The technology investment firm claims that both its original and increased offers would result in less dilution to the existing Technicolor shareholders, that the French company would receive higher proceeds, and that independent proxy advisory firms ISS, Glass Lewis and ProxInvest all recommend the Vector bid.
SatelliteFinance understands that FTI Consulting and Lazard are advising Vector on its bid. Davis Polk & Wardwell is providing legal advice to Technicolor.
Technicolor plans to use proceeds from a capital increase to reduce its debt burden, increase headroom for financial covenants and help fund the group’s “Amplify 2015” strategic roadmap, which outlines the company’s plans over the next three years to significantly de-lever while increasing both adjusted EBITDA and free cash flow generation. Its debt reportedly stood at €957m at the end of 2011.
