Redknee Solutions Inc. has struck a new investment deal with ESW Capital worth up to US$83.2 million, reports Jeremy Cowan. Under the terms of the December 9 agreement with Constellation Software, if the Redknee Board announced a ‘superior deal’ Constellation had the right to withdraw its offer which it has now done.
The Toronto, Canada-based provider of business support systems for the telecommunications and other industries, has announced a new Subscription Agreement with ESW Capital LLC and its affiliate, Wave Systems Corp., by which Redknee will complete a private placement of 800,000 Redknee Series A Preferred Shares and a common share purchase warrant to ESW Capital.
(Also see: Redknee Solutions announces US$80m private placement by Constellation to repay debt and support restructuring).
Based in Austin, Texas, the ESW Capital group focuses on buying, strengthening, and growing mature business software companies. By using its operating platform, ESW aims to revitalise its acquisitions for sustainable success “while making customer satisfaction a top priority”. The ESW family of companies have been in the enterprise software space since 1988, and the group includes such brands as Aurea, Ignite Technologies, Trilogy, and Versata.
According to Marketwired, Constellation (CSU.TO) reported that “the previously announced subscription agreement entered into by Constellation with Redknee (TSX:RKN) providing for a proposed investment by a subsidiary of Constellation of US$80 million in Redknee has been terminated pursuant to its terms.”
“The Agreement provided that, in the event that Redknee received a competing proposal that was considered to be superior by Redknee to the transaction contemplated by the Agreement, Constellation had the Matching Right to offer to amend the Agreement such that the competing proposal was no longer a superior proposal,” Marketwired reported.
On December 20 Redknee gave notice to Constellation and then announced that it had received an offer from an alternative investor which Redknee’s Board of Directors had determined constituted a superior proposal within the meaning of the Constellation agreement.
Constellation has therefore provided notice to Redknee that it will not exercise the Matching Right. As a result, Redknee has terminated the Agreement in accordance with its terms and Constellation will receive a termination fee of $3.2 million.
Under the terms of the new Agreement, ESW Capital has assumed the obligation to pay the Constellation Termination Payment, which will be non-refundable and credited against ESW Capital’s obligation to pay the proceeds of US$83.2 million to Redknee on the closing of the transaction.
The ESW Agreement provides for, among other things, a non-solicitation covenant on the part of Redknee, subject to a customary provision that entitles the latter to consider and accept a superior proposal subject to ESW Capital’s right to match, over a period of two business days, the superior proposal and the payment to ESW Capital of a termination payment — again of $3.2 million.
The closing of the transaction is subject to the approval of Redknee Common Shareholders at a meeting expected to be held on January 25, 2017.
Redknee’s largest investor, Invesco Canada Ltd., which holds approximately 19.9% of the outstanding Common Shares, has agreed to back the new transaction. In addition, all directors, certain officers and a shareholder of the Company holding Common Shares representing in aggregate approximately 16% of the outstanding Common Shares have also agreed to vote in favour of the transaction.
Redknee shares climbed initially to $1.81 (December 20) before ending the week (December 23) down, at $1.47. The shares have since rallied to $1.53 (December 28).
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