Vista Equity Partners Fund III has sent a letter to the board of directors of SumTotal Systems encouraging the board not to inhibit the auction process for the company.
Vista Equity Partners Fund III has sent a letter to the board of directors of SumTotal Systems encouraging the board not to inhibit the auction process for the company.
The letter states:
‘Vista’s financial advisors received a call today from SumTotal’s financial advisors suggesting that we bid against ourselves prior to your board meeting to consider our proposal announced this morning. This is apparently in order to avoid a repeat of Monday’s actions which harmed your shareholders. As you know, after you found our USD4.50 per share proposal to be a superior proposal (your existing merger agreement then provided for USD3.80 per share), we also received such a call, and raised our offer by USD0.25 per share.
‘On Monday, the last day of the three day period your existing merger partner was given to respond to our USD4.75 per share offer under your go-shop period, our respective advisors were in regular communications throughout the day concerning the execution of a merger agreement the next morning. You, therefore, can imagine our surprise when a few hours later we learned in fact you had met and had more than doubled the break-up fee under your go-shop provision, all in exchange for a mere USD0.05 per share increase over our price. For USD0.05 per share and without a phone call to us, you increased the burden on any further bid by USD0.10 per share — money that could have gone to your shareholders.
‘Your financial advisor equated the higher break-up fee to which you agreed with our proposed break-up fee, which totally misses the point. Our break-up fee would have only applied if your existing merger partner decided not to continue to bid and rather allowed Vista’s proposed agreement to be signed, thereby ending the auction process. Any counterproposals prior to the end of the auction would not have triggered a break-up fee under our proposal. In stark contrast, the increased break-up fee you agreed to with your existing merger partner went into effect immediately, in the middle of the auction, without us ever having the opportunity to match or exceed its existing bid. We continue to play by the rules; you keep tilting the playing field against us.
‘Having already deprived your shareholders of one potential increase, we are incredulous that you would contemplate a repeat of Monday’s events by further increasing the break-up fee or taking any other action that would decrease the likelihood of the highest value being obtained by your shareholders. We have now raised our price three times, and had you given us the opportunity to respond to the latest competing bid before more than doubling the break-up fee, our most recent increase would have been USD0.20 per share over our last bid and USD0.15 per share over the bid you signed up. This is an active auction. We strongly believe that your fiduciary duties require you to comply with the rules originally established and to cease providing additional protections to one party in this auction to the detriment of the process, us and your shareholders.’
