ESW Capital, LLC (“ESW”), controlling shareholder of Optiva Inc. (TSX:OPT) (“Optiva”), today released an open letter response to previous public communications made by Maple Rock Capital Partners.
The full text of the letter follows:
Attn. Mr. Xavier Majic
Your firm, Maple Rock Capital Partners, has released an open letter to the Optiva board of directors on January 21, 2020, as well as a Requisition of Special Meeting of Shareholders of Optiva on January 24, 2020. While we strenuously disagree with virtually the entire content of your remarks, we do not believe there is value in a detailed public back-and-forth response.
It seems that the core of your argument is that our firm, ESW, is attempting to entrench itself and harden our control of Optiva. We are writing this letter to demonstrate clearly that is not the case. On the contrary, we are willing today to cede control and sell our control position.
Brief Historical Summary
We purchased a control position in Optiva three years ago when the company was on the verge of bankruptcy. Since then, CEO Danielle Royston has rebuilt the company and changed everything. In her recent analyst briefing, she discusses how the legacy on-premise business is a “melting ice cube,” and how she has successfully repositioned the company to focus on the public cloud. She is forecasting that the legacy business will eventually shrink to zero naturally and is managing such decay in an effort to transition her customers to the public cloud. She also highlights that the opportunity to become the leading public cloud software vendor in the telecom industry is a tremendously exciting one, but equally risky. Mrs. Royston feels that initial deals will show minimal revenue with low gross margins and true returns on this ambitious investment will take 5-10 years. We agree with all of these assessments.
Request for Strategic Review
The final request from your requisition was for Optiva to form a special committee to explore strategic alternatives. It is essentially a request to shop and attempt to sell the company within the next year. Fortunately, there is no need to go through the cost and hassle of a contested meeting to achieve this result as ESW is prepared to go along with your request right now. ESW will sell our entire control position today for $200 million USD. Considering our preferred shares and assuming the exercise of our warrants, this works out to a price of just under $60 CAD per subordinate voting share, a price far below your claims of Optiva’s value and less than the amount you say you are willing to pay. Alternatively, we would support a buyer for the company as a whole at the same price per subordinate voting share. We are proud of the work done to date and believe that price offers us a compelling control premium to how we value Optiva as it sits today - no longer on the verge of bankruptcy but still years away from achieving our ultimate goal.
- Both yourselves and EdgePoint continually talk about all the available capital that you have to invest along with your many demands for operational changes. Feel free to bring your capital along with an operating team and take over.
- If you are unwilling to walk the talk, we know that Constellation Software (TSX:CSU) was interested in the business three years ago and if you believe they want to offer $200 million USD for our control position then please have them contact us with that offer.
- The same offer holds for anyone reading this letter - please contact us at info@eswcapital.com if you would like to make this offer.
While our return would be modest, exiting now is a better alternative than arguing with you about how to run a software company for the next 5-10 years. Our experience to date with your board representative has reinforced our view of your lack of acumen in software.
Absent such an offer, we remain excited by the opportunity and strategy that Mrs. Royston has laid out, including her announcement last week of the intention to raise USD $100 million to accelerate the cloud transition. We look forward to working with Optiva to achieve continued success.
About ESW Capital, LLC
Based in Austin, Texas, the ESW Capital group (www.eswcapital.com) focuses on buying, strengthening and growing mature business software companies. By taking advantage of its unique operating platform, ESW revitalizes its acquisitions for sustainable success while making customer satisfaction a top priority. ESW has been in the enterprise software space since 1988, and the group includes notable brands such as Aurea, Ignite Technologies, Trilogy and Versata.
For more information, email info@eswcapital.com.
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