Tuckamore Capital Management Inc.

Tuckamore Capital Management Inc.

June 26, 2014 08:30 ET

Tuckamore Exposes Access' Coercive and Inadequate Offers and Provides Update to Shareholders

TORONTO, ONTARIO--(Marketwired - June 26, 2014) - Tuckamore Capital Management Inc. (TSX:TX)(TSX:TX.DB.B) ("Tuckamore" or the "Company") released a letter to shareholders today exposing Access Holdings Management Company LLC's ("Access") prior attempts to seize control of Tuckamore without paying a premium to all shareholders. The Board's letter to shareholders also addressed the many misleading assertions advanced by Access in its attempted ambush in connection with the Company's previously announced special meeting of shareholders to be held on July 15, 2014 (the "Meeting"). At the Meeting, shareholders will be asked to vote on a proposal (the "Arrangement") pursuant to which Birch Hill Equity Partners ("Birch Hill"), together with certain members of Tuckamore's management, have agreed to acquire all of the issued and outstanding common shares of the Company (each a "share") for cash consideration at a price of $0.75 per share other than those shares owned or controlled by the members of Tuckamore's management that are involved.

Shareholders who have questions about voting their proxies should contact Kingsdale Shareholder Services at 1-888-518-1561 or contactus@kingsdaleshareholder.com.

The full text of the Board's letter to Shareholders follows:

Dear Fellow Shareholders,

Your Board received a compelling all-cash offer from a highly regarded purchaser, fully capable of closing. We had a responsibility and a fiduciary duty to bring that offer to all shareholders for deliberation and consideration. We have brought that offer to you and made our recommendation.

An entity called Access who owns less than 1% (or 600,000) of Tuckamore's outstanding shares, is attempting to seize control of Tuckamore. Joined by a group of disgruntled former Tuckamore managers, Access issued a proxy circular that makes a variety of misleading and maliciously false claims about Tuckamore, its Board, and the proposed $0.75 per share cash offer to shareholders.

What Access didn't highlight is that they made a partial bid of their own on March 25, 2014 for Newport Private Wealth Inc.'s approximately 31.4% client holdings in Tuckamore, for a "price not to exceed" $0.60 per share.

After considering this bid for Tuckamore's outstanding shares, Access was informed by the Chairman of Tuckamore and its advisors that while the Board was not prepared to support this partial and inadequate bid, it would welcome the opportunity to entertain a fully valued offer for all of the issued and outstanding shares of Tuckamore.

This was in fact the second proposal received from Access. The prior proposal received by Tuckamore in January 2014 purported to provide $100 million of new equity capital to be used to back-stop a rights offering for shares to be completed at a discount to the share's market price and was conditional upon a refinancing of the Company's debt. The Access rights offering was to be priced at approximately $0.31 per share. The Access rights offering proposal valued Tuckamore's equity at approximately $24 million, in contrast to the current cash offer that values Tuckamore's equity at approximately $70 million.

The rights offering proposed by Access would have resulted in it owning an equity block of at least 35% of Tuckamore's outstanding shares, a substantial stake, without paying a premium for control, or fair market value. In fact, the Access proposal could have resulted in considerable dilution of over 80% to existing shareholders...a dilutionary impact your Board has consistently, and successfully, worked to avoid.

In order to provide shareholders with an opportunity to properly consider Access' attempt to obtain control of Tuckamore, we have filed Access' term sheets, and the Board's written responses, on SEDAR for shareholders to review and judge for themselves.

Access stated in their circular that they believe Tuckamore's shares "can be worth more than $2.00 per share". This is in stunning contrast to their presentation to Tuckamore's Board in January 2014, where they provided two scenarios:

  1. A "Credit Case" that saw the shares paying dividends and appreciating to share values of $0.40 in 2016 and $0.42 in 2017;
  1. And a "Base Equity Case" that saw the shares paying no dividends appreciating to $0.65 in 2016 and $0.89 in 2017 as detailed in the chart excerpted from Access' January 2014 presentation to the Board below.

Based on Access Base Equity Case (upside) scenario, for shareholders to achieve a price equal to the current cash offer of $0.75 per share they would have to wait until 2017 and, even then, such value is predicated on a number of assumptions the achievability of which is highly speculative.

Their Base Equity Case projections which forecasts a $0.75 share price only in 2017 assumes:

  1. Substantial (and we believe unobtainable) organic EBITDA growth;
  2. Additional EBITDA growth through acquisitions;
  3. Those acquisitions would occur at a 5.5x EBITDA multiple; and
  4. Tuckamore would be able to realize synergies of 100% within 12 months of closing each transaction.
Access - Base Equity Case Scenario
(January 2014)
Valuation & Investor Returns 2014 2015 2016 2017 2018
Assumed EBITDA Multiple 6.00x 6.00x 6.00x 6.00x 6.00x
Enterprise Value $325 $385 $486 $620 $804
Less: Net Debt (173) (176) (212) (237) (285)
Equity Value $152 $209 $274 $383 $518
Totally Diluted Shares 406 416 424 431 436
Price per share $0.37 $0.50 $0.65 $0.89 $1.19
Source: Access "Partnership Proposal Discussion" January 2014

Access also utilized an EBITDA multiple of 6x to value Tuckamore in their January presentation to Tuckamore's Board, while their proxy circular now applies EBITDA multiples ranging from 7x to 8.3x. We further contrast that with their assumptions that Tuckamore would be able to make acquisitions of compatible companies at 5.5x EBITDA. This manipulation of multiples and the presumptions made illustrate Access' effort to create a picture to suit its purpose alone.

In their January presentation, Access appeared to place little value on capital losses in their presented scenarios. However, their proxy circular places unrealistic and unsubstantiated value on those capital losses.

Access' proposed scenarios for Tuckamore shares expose their utter hypocrisy, inconsistency and resulting lack of credibility in opposing the $0.75 cash offer to shareholders.

Based on Access' actions, we are confident that they were and continue to seek a route to seize control of Tuckamore without paying all shareholders a premium for their stock or even fair value. Faced with a superior cash offer of $0.75 made to all shareholders, they have resorted to making misleading statements about Tuckamore, its Board and their track record of equity value preservation, operating efficiencies and management expertise.

Your Board is very concerned that if the Arrangement is not approved, Tuckamore's shareholders will be exposed to the risk of material dilution if the plans proposed by Access are implemented. If Access truly believes Tuckamore's shares are significantly undervalued at $0.75 they would make a direct offer to all shareholders. They have been invited to do so. They have not. The only rational explanation for their failure to announce a superior offer is because they have a different agenda - an agenda that places their interests before those of Tuckamore shareholders.

Access' Plan to Seize Control of Tuckamore Without Paying a Premium or Fair Value to ALL Shareholders

Access, having failed twice to covertly acquire control of Tuckamore by purchasing a substantial stake at prices well below the current $0.75 cash offer price, has now threatened to requisition a special meeting of shareholders to reconstitute the Board of Tuckamore.

Access' effort to defeat the $0.75 cash offer to all Tuckamore shareholders is just the first step in their now exposed agenda. Worse, Access does not appear to be interested in even paying fair market value, let alone offering a premium to shareholders. Access, which owns less than 1% of Tuckamore's shares, plans to subsequently nominate six individuals for the Board of Tuckamore, led by Kevin McAllister the founder of Access and including, among others, a collection of disgruntled ex-Tuckamore managers. Access' diminutive holdings evidence their lack of financial commitment and lack of alignment with shareholders interests.

Some of the Access nominees are known to us and, given their track records at Tuckamore, their inclusion on Access' intended slate is baffling to say the least, and leads us to further question Access' judgement.

Setting the Record Straight

Access' circular contains inaccurate, misleading and incorrect statements. We believe that it is important that you are not misled.

Integrity of Process and Equal Treatment: The Board's process was thorough, thoughtful, comprehensive and focused on the best interests of the Company as well as preserving and maximizing shareholder value. The Board was advised by experienced financial and legal advisors and obtained a formal independent valuation from an internationally qualified and independent valuator. The Company complied with all applicable corporate and securities laws designed to protect minority shareholders and avoid conflicts of interests. In their capacities as shareholders, all members of the Board and senior management, other than Dean MacDonald and Adrian Montgomery, are being treated in the same manner as other shareholders and their interests are completely aligned with all shareholders. Mr. Brown and Mr. Kinney have both entered into agreements to vote their own shareholdings in favour of the $0.75 cash offer.

No Change of Control Payments: There will be no change of control payments for members of management who are part of the buyout group made upon implementation of the Arrangement. For Access to suggest otherwise is false. As described in the management information circular, Birch Hill requires the existing employment agreements of Messrs. MacDonald, Montgomery and Hatcher to be amended to eliminate their right to any change of control payments.

Shareholder Rights Plan: Access' partial bid attempts and the subsequent issuance of an early warning report by another shareholder that reported ownership of 14% of Tuckamore's shares, precipitated the Board, on the advice of its advisors, to adopt a Shareholder Rights Plan, subject to shareholder approval. A Shareholder Rights Plan is a common step designed to protect shareholders and ensure that the Board has sufficient time to consider alternate proposals in the event of an unsolicited bid - in order to maximize shareholder value.

No Special Option Benefits for Any Director: Pursuant to Birch Hill's offer, all outstanding options receive the same treatment. Contrary to Access' allegations, all option holders will receive the same economic benefit regardless of whether they exercise their options. No director is receiving special option benefits. To characterize the treatment of the options as a "special" benefit not being offered to other shareholders is intentionally misleading and implies an inappropriate benefit that does not exist.

Thorough Strategic Review: The Board approved the Arrangement only after considering many factors including the strategic review process that had been ongoing since late 2012. After contacting over 20 potential purchasers in North America and internationally, no third party offers or proposals to acquire the Company or all or a significant portion of its assets, have been received by the Company or its advisors on terms that would maximize shareholder value.

Appropriate and Reasonable Break Fees: The break fee in the Birch Hill Offer provides the Board with the flexibility to accept a superior proposal or to change or withdraw its recommendation. The fees range from $1.5 million to $6 million or less than 2 cents to less than 7 cents per share on a fully diluted basis. These fees are appropriate and reasonable as, among other things, they were necessary to induce the purchaser to provide this flexibility and they would not unduly dissuade other potential offers. The quantum of these fees remains comparable to other transactions of this nature at approximately 0.5% to 2.0% of the Company's enterprise value. We do not believe that a break fee of less than 2 cents to less than 7 cents per share on a fully diluted basis, is an impediment to a superior offer, and certainly no impediment to Access who claims to see $2.00 of value in our shares. Again, any other third party is entitled to make a superior offer to all shareholders under the Arrangement Agreement.

The Company was required to obtain a formal valuation of the shares, which can take several weeks to complete. The Board considered this timing and weighed it against the real concern that the purchaser's offer could be lost. The independent directors determined that it was in the best interests of the Company to establish this fee structure to allow the Company to enter into a binding agreement with the purchaser prior to the receipt of a formal valuation, but that would also allow the Board the ability to exercise its fiduciary obligations in the event that it was unable to continue to support the transaction following receipt of the formal valuation. In effect, the Board was able to successfully negotiate a one-way option to terminate the transaction if the valuation was unfavourable and be limited to the requirement to pay a very diminutive break fee, primarily to cover the costs of the purchaser.

Newport Private Wealth: Neither Douglas Brown, nor Mark Kinney, participate in the formal decision-making process at Newport Private Wealth as it relates to its clients' holdings in Tuckamore. In particular, in respect of the Arrangement, the Newport Private Wealth Investment Committee considered the implications of the offer and resolved to recommend to its clients to vote in favour of the Arrangement. This decision was made without the participation of Mr. Brown or Mr. Kinney, and the Investment Committee on behalf of its clients has reserved its right to change its recommendation in certain circumstances, including subsequent receipt of a superior bid. The portfolio managers and clients of Newport Private Wealth are significant shareholders of Tuckamore. They have a strong interest in securing maximum value for their shares and are totally aligned with the interests of all other shareholders.

The relationship between Tuckamore and Newport is historic and has always been a matter of open public record. The relationship is based upon principles of governance, integrity, independence, proper process and a sole shared interest in maximizing value for all shareholders. To suggest otherwise is a transparent attempt to drive a wedge between Newport and its clients.

Board Renewal: Access negatively characterizes the changes in Tuckamore's Board over the last several years. In fact, Tuckamore, in keeping with corporate governance best practices, has worked diligently to ensure that it has directors with the right combination of skills to lead the company during the various stages of its evolution. The Board is made up of highly-qualified and experienced individuals, who have consistently acted as responsible and engaged fiduciaries.

The Board and Management Led a Turnaround of Tuckamore and Preserved Value for Shareholders

Debt Restructuring

Access' assertions about value creation at Tuckamore completely ignore the imperilled state of the company when CEO Dean MacDonald and much of the senior operating team took charge in December 2008.

Tuckamore was in a great deal of financial distress in December of 2008. At December 31, 2008, Tuckamore had invested $668 million, recorded losses to date of ~$270 million, including asset write-downs of $260 million, and had approximately $400 million of total debt, of which $237 million of senior debt was in default and due on demand.

From 2009 through 2010, due to decisions made by the former board and management, Tuckamore faced $242 million due on demand on its senior debt facility, and $165 million of unsecured debentures in default and due on demand, for a total liability of $407 million. Management and the Board rejected an early proposal for a refinancing offer that would have resulted in significant equity dilution, preferring to seek alternatives that could preserve value for shareholders. Instead, Management worked expediently to negotiate a forbearance agreement, effective for one year, which would preserve the equity capital of the Company. The forbearance agreement required asset sales with debt principal repayment milestones.

Despite the distressed nature of the asset sales, management was able to negotiate market rates for assets and all sales were approved by the Board of Directors including John Bell, one of Access' purported nominees. As part of this process Management also engaged with minority interest partners who were attempting to buy Tuckamore's businesses at a discount.

By the end of 2010, $155 million of senior debt was repaid through asset sales at very good prices against the backdrop of a very challenging economic climate. These asset sales kept Tuckamore solvent and preserved equity value with no shareholder dilution.

In 2011, Management and the Board led a restructuring of $85 million of senior debt and $165 million of unsecured debentures. Once again value for equity holders was preserved and management and the Board was able to acquire minority interests in both of Tuckamore's largest assets, ClearStream and Quantum Murray.

Operational and Management Success

Dean MacDonald and his management team have exhibited strong management and operational expertise. Through a very difficult period they have stabilized debt, made significant improvements in working capital management, and restructured the operating businesses with new management and rebranding programs. Tuckamore's EBITDA has grown at a compound annual growth rate of 35% under current management, and the leadership of the Board.

To view the figure associated with this press release, please visit the following link: http://media3.marketwire.com/docs/954266_FIGURE.pdf.

Preservation of Value

The protestations of Access and their hand picked intended nominees notwithstanding, the management and Board of Tuckamore has preserved and protected equity value for Tuckamore shareholders. Shareholders would be hard pressed to find another company who faced similar challenges and restructured without significantly or completely wiping out common equity holders. It is typical in Canadian restructurings for equity holders to retain zero to 10% of total equity ownership. Tuckamore's Board and management team has consistently avoided that outcome for Tuckamore shareholders.

The Value Maximization Process

The Arrangement represents the culmination of a comprehensive Board-led value maximization and strategic alternatives process that began in late 2012 with the retention of Canaccord Genuity Corp. as its financial advisor. Management actively solicited and pursued numerous purchasers and consortiums with the aid of independent financial and legal advisors.

Throughout the strategic review process, the Board diligently engaged with all interested parties to thoroughly assess each opportunity's potential to create and enhance shareholder value. An abbreviated summary of the value maximization process is provided below and described in much greater detail in the management information circular and initial letter to shareholders.

  • Beginning in January 2013, the Board actively solicited expressions of interest for ClearStream, a subsidiary of the Company that for the year ended December 31, 2013 generated approximately 78.0% of the Company's revenue and essentially all of its EBITDA. Despite engaging with over 20 possible purchasers, no transaction materialized.
  • In January 2014 and again in February 2014, Douglas Brown in his capacity as Chairman of Tuckamore received proposals from Access. Access offered to support a rights offering at a discount to the market price and possibly as low as $0.31 per share. The Board deemed the proposals highly dilutive in addition to their failure to pay shareholders any premium.
  • In January 2014, Mr. MacDonald and Mr. Montgomery approached the Board indicating they were considering a management sponsored acquisition and asked that the Board consider the Company entering into a non-disclosure agreement with potential financial sponsors.
  • In March 2014, Access offered to acquire all Tuckamore shares held by clients of Newport Private Wealth Inc. at a price equal to 115% of the then market price of the shares, but not to exceed $0.60 per Share. The Board rejected the inadequate partial bid while reiterating its willingness to entertain a fully valued offer for all Tuckamore Shares.
  • In April 2014, Birch Hill sent a non-binding offer to the Board to acquire all of Tuckamore for $0.60 per share. The Company entered negotiations to improve the offer to $0.75 per share with reduced break fees and capped fees.
  • After several days of negotiations, Birch Hill accepted Tuckamore's stipulations.
  • On June 9, 2014, the Board received an independent valuation from PricewaterhouseCoopers ("PwC") concluding that the fair market value of shares is in the range of $0.60 to $0.81 per share, placing the $0.75 cash offer above the midpoint of the range.

Why Shareholders Should Accept the Cash Offer

Your Board believes the Birch Hill offer represents the best offer for immediate value and certainty for all shareholders. The Board was advised at all times by independent experienced legal and financial advisors, and the due diligence pursued by the Board was thorough, thoughtful, comprehensive and focused on preserving and maximizing value for the Company's shareholders.

Shareholders who have struggled to find liquidity due to Tuckamore's relatively light trading volumes can receive certain value of their shares. The cash consideration of $0.75 is above the mid-point of the range of value determined by PwC in its valuation and rewards shareholders with a meaningful premium. This offer eliminates the ongoing operational and refinancing risks associated with Tuckamore's businesses.

As directors, we have a duty to present an offer such as this to shareholders for their consideration, and we have a duty to give it due consideration and make a recommendation to shareholders. We have done that, and judged this offer to provide immediate and certain value that is in the best interests of all shareholders. Through this Board initiated process, your shares, that traded at $0.11 a year ago, and have averaged approximately $0.31 for past 5 years (as at March 25, 2014 the date of the receipt of the second Access proposal), with little to no investor interest, have now risen substantially in value to $0.75 and created investor interest the likes of which your company has not seen.

Your Vote is Very Important

The Arrangement represents an important milestone in our Company's history. To receive the premium for your shares and avoid future financing and operational risks associated with Tuckamore's business, please cast your vote today in favour of the Arrangement Resolution. Your vote is important regardless of how many shares you own.

If you have any questions or need assistance in voting your proxy, please contact our proxy solicitor Kingsdale Shareholder Services at 1-888-518-1561 (toll free within North America) or 416-867-2272 (collect calls accepted), or by email at

We look forward to seeing you at the Meeting.

Yours very truly,

Douglas Brown, Chairman of the Board of Directors

Exhibits filed on SEDAR Include:

Exhibit A - Partnership Proposal Discussion Presentation, January 2014

Exhibit B - Partnership Proposal Letter, February 20, 2014

Exhibit C - Tuckamore First Response to Access' Proposal, March 7, 2014

Exhibit D - Access' Second Proposal, March 25, 2014

Exhibit E - Tuckamore Chairman's Response, April 3, 2014

About the Company

Tuckamore has investments in 7 businesses representing a diverse cross-section of the Canadian economy.

About Birch Hill's Investment

The investment will be part of Birch Hill Fund IV with over $1 billion in committed capital.

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