Fuel Systems Solutions Co-Founder Submits Assessment of Flawed Westport Transaction to Proxy Advisory Firms
May 10 2016 - 8:00AM
Business Wire
Demonstrates the Amended Merger Agreement Does Not Deliver a
Merger Premium, Is Not Reflective of Fuel Systems’ Massive
Contribution to the Combined Company and is Below Fuel Systems’
Standalone Value
Fuel Systems’ Split Board Vote and Extraordinary Director
Actions Demonstrate Concern Over Future Value of Combined
Company
Beneficial Owner of Approximately 8.7% of Outstanding Fuel
Systems Shares Intends to Vote AGAINST the Amended Merger
Agreement
Pier Antonio Costamagna, a co-founder of Fuel Systems Solutions,
Inc. (“FSS”) (NASDAQ: FSYS) yesterday filed a presentation with the
U.S. Securities and Exchange Commission ("SEC") that was sent to
the leading proxy advisory firms in the United States. The
presentation details three fundamental themes that underline Mr.
Costamagna’s decision to vote AGAINST the proposed merger of FSS
and Westport. Mr. Costamagna has sole voting power over 1,576,043
shares of FSS common stock, representing approximately 8.7% of
outstanding shares. The presentation is available on the SEC’s
website at
http://www.sec.gov/Archives/edgar/data/1328986/000119312516583735/d163711dex994.htm.
1. The Amended Merger Agreement does not
reflect a fair value for FSS shareholders.
a. At the current implied offer price, FSS
shareholders are not receiving ANY merger related premium. Based on
the current implied offer and FSS’ unaffected stock price as of
August 31, 2015 the current Amended Merger Agreement represents a
26% discount to FSS unaffected share price.
b. The key valuation methodologies discussed
in J.P. Morgan’s summary of its Fairness Opinion implies that FSS’
standalone value is substantially higher than the current implied
offer price. In particular, the Discounted Cash Flow (DCF) yields a
standalone value of $12.65-17.05 per share – both substantially
higher than the current implied offer of $5.07 per share.
c. FSS will be a significant contributor to
the combined company but under the Amended Merger Agreement will
receive an inadequate stake in the combined company. FSS will
contribute 72% of revenue, 69% of cash (ex. Cartesian Financing) as
of last reported financials (31 Dec. 2015) while FSS shareholders
will own only 38% of the combined entity. Projections provided by
both FSS and Westport management show that FSS will account for 69%
and 56% of combined revenue in FY16 and FY17, respectively.
Additionally, FSS is expected to generate positive EBITDA (compared
to negative EBITDA for Westport) in both FY16 and FY17.
2. The Cartesian Financing clearly
strangles the future of the combined company.
a. In exchange for $17.5 million cash
(Tranche 1) Westport will be required to pay $46 million to
Cartesian - the minimum fixed payments result in an effective
interest rate of approximately 23%.
b. The FSS board plainly admits that
Cartesian will have significant influence and control over the
combined company.
c. The Cartesian Financing and all of its
terms have not even yet been made publicly available.
d. Even with the Cartesian Financing in
place, the companies indicate that the combined entity may have a
NEGATIVE cash balance in 2017.
3. FSS’ split board vote and extraordinary
director actions demonstrate a clear concern over future value of
the combined company.
a. It is now disclosed in the Amended Proxy
Statement that the FSS Board of Directors vote was split on the
Amended Merger Agreement. In fact, deliberations on the Amended
Merger Agreement led to the extraordinary action of a director
demanding the record reflect that pressure was applied to directors
to vote in favor of the agreement.
b. One director (member of Nominating and
Corporate Governance Committee and the Strategic Oversight
Committee) took another extraordinary step to resign from the board
following this board meeting.
c. Only after this contentious meeting when
the board met without the CEO and the resigned director was the
Amended Merger Agreement approved “unanimously” by directors
present.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160510006033/en/
Abernathy MacGregorPat Tucker / Cia
Williams212-371-5999pct@abmac.com / cew@abmac.com
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