True Premium of Offer Dramatically Understated
As Deal Was Announced Concurrent with Third Negative Guidance
Revision in Last 12 Months
Board’s Robust Sale Process Yielded Only One
Potential Buyer
Lone Star Merger Provides Immediate, Certain
Cash Value, and Transfers All Business Risks and Regulatory
Uncertainties to the Acquiror
DFC Global Strongly Disagrees with ISS
Report
DFC Global Corp. (NASDAQ:DLLR) (“DFC Global” or “The Company”),
a leading international diversified financial services company
serving primarily unbanked and under-banked consumers for over 30
years, today issued a statement in response to a report by
Institutional Shareholder Services (“ISS”) released on May 24,
2014, relating to the Company’s proposed transaction with an
affiliate of Lone Star Funds (“Lone Star”).
In its statement, the Company highlighted several key issues and
facts that ISS neglected to appropriately consider or failed to
understand in connection with its report, including:
- The true premium of the offer is
dramatically understated because it was announced concurrent
with the Company’s third downward guidance revision in the last
12 months;
- The robust sale process conducted by
the DFC Global Board of Directors, which involved soliciting more
than 40 parties over a 24 month period, yielded only a single
potential buyer;
- Lone Star’s proposal would allow DFC
Global stockholders to recognize significant, immediate and certain
cash value for their investment, while transferring all business
risks and regulatory uncertainties to Lone Star.
The full text of the Company’s statement is below:
“DFC Global strongly believes that ISS
reached the wrong conclusion in failing to recommend that
stockholders vote “FOR” the acquisition of DFC Global by Lone Star.
The Company believes ISS neglected to appropriately consider or
failed to understand several key issues and facts in preparing its
report. Stockholders are urged to give the following issues and
facts close consideration, as a vote against the proposed
transaction with Lone Star could result in a significant loss of
value for DFC Global stockholders.
The true premium of
the offer is dramatically understated because it was announced
concurrent with the Company’s third downward guidance revision in
the last 12 months. By the end of the third fiscal
quarter of 2013 it was clear to the Board that a number of factors,
primarily the ongoing, evolving regulatory uncertainty in the U.K.,
would negatively impact the business for the foreseeable future.
The Company experienced a series of deteriorating earnings results
and revised its guidance downward to reflect the evolving
situation. These announcements resulted in a 46% drop in the
market price of the Company’s stock over the 12 months prior to the
announcement of the transaction:
- April 1, 2013: DFC Global
announces preliminary results for the third fiscal quarter of 2013
and lowers earnings guidance for fiscal year 2013. The market
price of the Company’s common stock declines 22%.
- August 22, 2013: DFC Global
announces fourth fiscal quarter and full fiscal year 2013 results,
and initiates fiscal 2014 guidance well below analyst estimates.
The market price of the Company’s common stock declines
29%.
- January 30, 2014: DFC Global
announces second fiscal quarter results and another significant
downward revision to guidance. The market price of the Company’s
common stock further declines from $10.57 to $7.52 in one day –
a 29% drop.
- April 2, 2014: DFC Global
announces preliminary financial results for the third fiscal
quarter of 2014, and a third downward revision of financial
guidance in the last 12 months. The Board firmly believes that,
without the support offered by the $9.50 per share offer price
announced the same day, DFC Global’s stock
price would have suffered another substantial drop at least as
severe as the three prior instances – which ranged from 22% to
29%.
Therefore, based on that final negative
guidance reduction and assuming a 22% to 29% decline in the stock’s
closing price of $8.98 the day prior to the announcement, Lone
Star’s $9.50 per share offer would represent a premium ranging from
36% to 49%.
The Company also notes that the 2014 fiscal
year EBITDA multiple of 8.3x reflected by Lone Star’s $9.50 per
share cash offer is materially higher than the average precedent
transactions in the short-term consumer finance space of 6.1x over
last 5 years, and a 10-year average of 6.5x. Additionally, DFC
Global has historically traded at a 1.0x discount to peers on an EV
/ NTM EBITDA basis on average over the past year*. As noted by a
key sell-side analyst**:
“We believe the valuation multiple is
probably reasonable given the high level of uncertainty in the U.K.
market at this time and considering DFC’s relatively high
leverage.” – William Blair, 4/3/14
In addition, key sell-side analysts – FBR
Capital Markets and Wells Fargo Securities – made recommendations
after the announcement of the offer price in consideration of the
downward earnings revision, noting price targets previously below
the announced transaction price**:
“We raise our price target to $9.00 (from
$8.00) based on an 80% probability that the announced sale closes
at the $9.50 announced price, and a 20% probability that it falls
through and shares trade to $6.00 (based on 7x FY14 EBITDA).” - FBR
Capital Markets, 4/3/14
“We believe that the key decision for this
agreement to be reached was the continued deterioration in
operating performance and the heavy debt load DLLR carries… We now
expect shares to be largely range bound around the deal price of
$9.50 and as a result are increasing our valuation range to
$9.00-10.00 from $7.00-9.00.” - Wells Fargo Securities, 4/2/14
The robust sale
process conducted by the DFC Global Board over 24 months yielded
only a single potential buyer. The Board’s independent
financial advisor, Houlihan Lokey, solicited more than 40 potential
financial and strategic acquirors to explore a potential
transaction with DFC Global.
Of the numerous potential acquirors, Lone
Star was the only party to submit a final proposal to acquire the
Company. After a thorough review, and in consultation with its
financial and legal advisors, DFC Global’s Board of Directors
unanimously voted to enter into a definitive agreement with Lone
Star. Since the agreement with Lone Star was announced on April 2,
2014, no parties have approached DFC Global with an interest to
acquire the Company.
Lone Star’s proposal
would allow DFC Global stockholders to recognize significant,
immediate and certain cash value for their investment, while
transferring all business risks and regulatory uncertainties to
Lone Star. While DFC Global is making efforts to address
the significant, ongoing developments that have occurred in the
U.K. regulatory environment in which it operates, the Company is
unable to forecast, with any certainty, when the regulatory
environment will stabilize. DFC Global was surprised by ISS’s
opinion that much of the regulatory uncertainty the Company faces
in the U.K. “will likely be addressed in the near term.” We believe
this is, at best, an opinion based upon unsubstantiated assumptions
and that such assumptions will not be reflected in the Company’s
stock price for the foreseeable future.
The Company also notes that Egan Jones,
another independent proxy voting and corporate governance advisory
firm, recommends that its institutional clients that own DFC Global
common stock vote “FOR” the proposed transaction with Lone
Star at DFC Global’s special meeting of stockholders.
Absent the proposed transaction, the Board
strongly believes the Company’s stock price would currently trade
substantially lower. The Board believes that a vote against the
transaction with Lone Star is a vote for significant shareholder
value destruction, while a vote FOR the transaction:
- Provides stockholders with immediate
cash value for their investment, far in excess of where the Board
believes the stock would be trading absent an offer;
- Represents certainty, despite the
challenging and uncertain environment in which DFC Global operates;
and
- Transfers the risks associated with the
Company’s financial and operating performance for the foreseeable
future to Lone Star.
DFC GLOBAL URGES INVESTORS TO PROTECT
THEIR INVESTMENTS BY VOTING FOR THE
TRANSACTION WITH LONE STAR
DFC Global’s Board of Directors and
management team are fully committed to completing the transaction
with Lone Star, which will deliver certain and immediate cash value
for DFC Global stockholders with limited execution risk. The
Board firmly believes that this transaction, which is the
culmination of a thorough process, is in the best interests of all
stockholders.
DFC Global reiterates the Board’s unanimous
recommendation that stockholders vote “FOR” the proposal to
approve the merger agreement at the upcoming special meeting.
The special meeting is scheduled for June 6, 2014, at 9:00 a.m.
Eastern time. The meeting will be held at Two Logan Square, 100 N.
18th Street, 30th Floor, Philadelphia, Pennsylvania 19103-2799. All
DFC Global stockholders of record as of the close of business on
April 29, 2014, will be entitled to notice of, and to vote at, the
special meeting.
Stockholders with questions, or that need assistance in voting,
should reach out to DFC Global’s proxy solicitor, Okapi Partners
LLC, at (212) 297-0720 or toll-free at: (855) 208-8901.
Houlihan Lokey Capital, Inc. is acting as financial advisor to
DFC Global in connection with the transaction. Pepper Hamilton LLP
is acting as DFC Global’s legal advisor. Jefferies LLC is acting as
lead financial advisor to Lone Star Funds and Credit Suisse
Securities (USA), LLC is acting as financial advisor. Jefferies
Finance LLC and Credit Suisse AG are providing debt financing
commitments for the acquisition. Gibson, Dunn & Crutcher LLP is
acting as legal counsel to Lone Star Funds.
* Historical multiples based on Capital IQ estimates as of May
23, 2014.
** Permission to use quotations was neither sought nor
obtained.
About DFC Global Corp.
DFC Global Corp. is a leading international non-bank provider of
alternative financial services, principally unsecured short-term
consumer loans, secured pawn loans, check cashing, gold buying,
money transfers and reloadable prepaid debit cards, serving
primarily unbanked and under-banked consumers through its
approximately 1,500 current retail storefront locations and its
multiple Internet platforms in ten countries across Europe and
North America: the United Kingdom, Canada, the United States,
Sweden, Finland, Poland, Spain, Romania, the Czech Republic and the
Republic of Ireland. The Company’s networks of retail locations in
the United Kingdom and Canada are the largest of their kind by
revenue in each of those countries. For more information, please
visit the Company’s website at www.dfcglobalcorp.com.
The Company believes that its customers, many of whom receive
income on an irregular basis or from multiple employers, choose to
conduct their personal financial business with the Company rather
than with banks or other financial institutions due to the range
and convenience of services that it offers, the multiple ways in
which they may conduct business with the Company and its
high-quality customer service. The Company’s products and services,
principally its unsecured short-term consumer loans, secured pawn
loans and check cashing and gold buying services, provide customers
with convenient access to cash for living expenses and other needs.
In addition to these core offerings, the Company strives to offer
its customers additional high-value ancillary services, including
Western Union® money orders and money transfers, reloadable VISA®
and MasterCard® prepaid debit cards and foreign currency
exchange.
About Lone Star Funds
Lone Star is a global private equity firm that invests in real
estate, equity, credit, and other financial assets. Since the
establishment of its first fund in 1995, Lone Star has organized
twelve private equity funds with aggregate capital commitments
totaling over $45 billion. The Funds are advised by Lone Star
Global Acquisitions, Ltd. (LSGA), an investment adviser registered
with the U.S. Securities and Exchange Commission. LSGA and its
global subsidiaries advise the Funds from offices in North America,
Western Europe and East Asia.
Forward-Looking Statements
This news release contains forward-looking statements,
including, among other things, statements regarding the following:
the Company’s future results, growth, guidance and operating
strategy; the global economy; the effects of currency exchange
rates and fluctuations in the price of gold on reported operating
results; the regulatory environment in Canada, the United Kingdom,
the United States, Scandinavia and other countries; the impact of
future development strategy, new stores and acquisitions;
litigation matters; financing initiatives; and the performance of
new products and services. These forward-looking statements involve
risks and uncertainties, including risks related to: approval of
the transaction by the Company’s stockholders (or the failure to
obtain such approval), the ability to obtain regulatory approvals
for the transaction, the Company’s ability to maintain
relationships with customers and employees following the
announcement of the transaction, the ability of third parties to
fulfill their commitments relating to the transaction, including
providing financing, the ability of the parties to satisfy the
closing conditions, and the risk that the transaction may not be
completed in the anticipated time frame or at all; the regulatory
environments of the jurisdictions in which we do business,
including reviews of our operations principally by the CFPB in the
United States and the Financial Conduct Authority in the United
Kingdom, and other changes in laws affecting how we do business and
the regulatory bodies which govern us; current and potential future
litigation; the identification of acquisition targets; the
integration and performance of acquired stores and businesses; the
performance of new stores and internet businesses; the impact of
debt and equity financing transactions; the results of certain
ongoing income tax appeals; the effects of new products and
services, or changes to our existing products and services, on the
Company’s business, results of operations, financial condition,
prospects and guidance; and uncertainties related to the effects of
changes in the value of the U.S. Dollar compared to foreign
currencies. There can be no assurance that the Company will attain
its expected results, successfully integrate and achieve
anticipated synergies from any of its acquisitions, obtain
acceptable financing, or attain its published guidance metrics, or
that ongoing and potential future litigation or the various U.S.
Federal or state, U.K., or other foreign legislative or regulatory
activities affecting the Company or the banks with which the
Company does business will not negatively impact the Company’s
operations. A more complete description of these and other risks,
uncertainties and assumptions is included in the Company’s filings
with the Securities and Exchange Commission, including those
described under the heading “Risk Factors” in the Company’s Annual
Report on Form 10-K for the Company’s fiscal year ended June 30,
2013, as amended in its Form 10-Q for the quarter ended December
31, 2013 and in its Form 10-Q for the quarter ended March 31, 2014.
You should not place any undue reliance on any forward-looking
statements. The Company disclaims any obligation to update any such
factors or to publicly announce results of any revisions to any of
the forward-looking statements contained herein to reflect future
events or developments.
Additional Information and Where to Find It
In connection with the proposed transaction, DFC Global has
filed a proxy statement with the SEC. The definitive proxy
statement and a form of proxy has been mailed to the stockholders
of DFC Global. BEFORE MAKING A VOTING DECISION, DFC GLOBAL’S
SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT BECAUSE IT
CONTAINS IMPORTANT INFORMATION. DFC Global’s stockholders and other
interested parties may obtain, without charge, a copy of the proxy
statement and other relevant documents filed with the SEC from the
SEC’s website at www.sec.gov. DFC Global’s stockholders and other
interested parties may also obtain, without charge, a copy of the
proxy statement and other relevant documents by going to the
Investors section of DFC Global’s corporate website,
www.dfcglobalcorp.com, or directing a request by mail or telephone
to DFC Global Corp., 1436 Lancaster Avenue, Berwyn, Pennsylvania
19312.
DFC Global and its directors and officers may be deemed to be
participants in the solicitation of proxies from DFC Global’s
stockholders with respect to the special meeting of stockholders
that will be held to consider the proposed transaction. Information
about DFC Global’s directors and executive officers and their
ownership of DFC Global’s common stock is set forth in the proxy
statement for the Company’s 2013 annual meeting of stockholders,
which was filed with the SEC on October 7, 2013 and the Company’s
Annual Report on Form 10-K for 2013 filed with the SEC on August
29, 2013. Stockholders may obtain additional information regarding
the interests of DFC Global and its directors and executive
officers in the proposed merger, which may be different than those
of the Company’s stockholders generally, by reading the proxy
statement and other relevant documents regarding the proposed
merger, when filed with the SEC.
DFC Global Corp.ICRInvestor RelationsGarrett Edson,
484-320-5800orMediaPhil Denning, 646-277-1200orLone Star FundsJoele Frank, Wilkinson Brimmer
KatcherAndy Brimmer / Jed Repko / Joseph Sala, 212-355-4449
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