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Instructure Sale Update: No bids received, a third of investor shares now against sale

Author

Phil Hill
January 09, 2020

At midnight last night the Instructure 1 “go-shop” period, where the company could solicit and accept a superior bid to Thoma Bravo’s bid, ended with no new bids and a revised proxy statement. At the same time, there is much more investor protest against the sale, both from named investors and anonymous ones. A third of investors appear to be against the sale.

Revised Proxy Statement

As part of the process, Instructure has revised the proxy statement that is used to inform shareholders of relevant details leading up to the vote. They have also filed details about the end of the go-shop period.

To date, no party has submitted an alternative proposal to acquire Instructure.

At the direction of Instructure’s Board of Directors, representatives of J.P. Morgan, Instructure’s financial advisor, broadly solicited and contacted third parties that Instructure and J.P. Morgan believed might be interested in a possible alternative transaction, approaching a total of 24 potential buyers during the go-shop period to determine their interest in exploring a potential transaction with Instructure, including 9 parties with whom Instructure had discussed a potential strategic transaction prior to the execution of the merger agreement. Instructure and its financial advisor engaged with a total of 55 parties regarding a possible transaction.

The revised proxy also describes details on the shareholders’ vote:

  • The vote is scheduled for February 13, 2020.

  • The Directors and Executive Officers control approximately 10.1% of outstanding share and have already indicated they will all vote FOR the merger agreement (technical nature of the acquisition) and FOR the executive compensation plan.

  • The vote for the merger agreement is binding – they must get a majority of shareholder votes to complete the acquisition, but the vote for the executive compensation plan is non-binding (advisory).

More Investors Come Out Against Sale

At the same time, a fourth large investor (this one with a 1.5% share) has come out against the sale. As described by Bloomberg:

Thoma Bravo’s agreement last month to buy Instructure for $47.60 per share sharply undervalues the company, Lateef Investment Management said in a letter to the board. Instructure is worth at least $60 per share — and that’s before factoring in the value of deductions it can make to lower its taxable income, Lateef said in the letter, a copy of which was obtained by Bloomberg. [snip]

“Goldsmith staying on as CEO seems like a conflict of interest where he’s putting his own interests ahead of shareholders,” Tran said. “We don’t think Dan has done a good job with Bridge and this deal rewards him rather than hold him accountable.” Bridge is Instructure’s employee development software division.

It looks like the protest goes beyond even the big four, again according to Bloomberg:

At least four stockholders — Praesidium Investment Management, Rivulet Capital, Lateef Investment Management and Oberndorf Enterprises — have written letters to the board expressing concerns about the sales process and possible conflicts of interest in the deal. Several other investors expressed their dissatisfaction with the deal to Bloomberg on the condition of remaining anonymous because their corporate policies prevent them from discussing their views with the media.

“The number of large, long-term, diligent shareholders which have expressed opposition to the proposed merger speaks for itself,” said Oberndorf Chairman William Oberndorf, whose firm owns a 3.8% stake in Instructure. “The management and the board have lost the trust of shareholders and now face the prospect of a failed shareholder vote.”

This is just the second time in his 40-year investing career that he has written a letter to express concerns about a management team or board for what he said was a failure of their fiduciary duties.

Additional Details

If approved by shareholders, the deal is expected to close before the end of March, 2020, allowing for final regulatory approval (anti-trust, primarily) and filing of final legal paperwork.

The big differences in this new no-shop phase are that Instructure may not actively solicit new bids and that the termination fee, should Instructure walk away from the Bravo agreement, rises from $29 million to $63 million.

The deal is not dependent on securing financing. This doesn’t mean that Thoma Bravo will not get debt financing for Instructure, but it does mean that their bid is secured with cash funds.

This one is still worth watching.

Disclosure: Instructure is a subscriber to the MindWires LMS Market Analysis data service (as are many of their competitors), and we have a number of investment firms who are also subscribers to the service and pay for in-depth market data and research.

1 Disclosure: Instructure is a subscriber to the MindWires LMS Market Analysis data service (as are many of their competitors), and we have a number of investment firms who are also subscribers to the service and pay for in-depth market data and research.