Timing of DH closing questioned

Sped-up deal costs dividend payment

In any sporting contest, success, or otherwise, can came down to the outcomes of a few very close plays. In an M&A transaction, success, or at least one measure of it, can come down to a transaction being completed faster than originally anticipated — all of which saves the buyer one dividend payment.

Consider the recently completed acquisition of DH Corp. by Vista Equity Partners, a transaction that was announced on March 13. In that deal, shareholders were offered $25.50 a share.

At the time the two parties said the transaction would require a special meeting of shareholders that was expected to be held in May. And once all the regulatory approvals were received for the $4.8-billion acquisition, the deal was “expected to close prior to the end of the third quarter 2017.”

As things materialized, the deal closed this week — three months ahead of the original schedule. That speeding up of the process “cost” shareholders about $13 million. And some shareholders are upset. “This seems to me to be a very shareholder-unfriendly action in a situation where shareholders might not necessarily be that thrilled with the ($25.50) price being paid for DH. It would seem to be rather easy to defer closing until June 17,” noted one.

So what happened? Anthony Gerstein, DH Corp.’s head of investor relations, said, “the certainty of getting the deal closed was the motivation. Everything was achieved in the due course of timing, getting all the regulatory approvals. It all matched up,” he added.

Along the way, shareholders were kept informed. When it released its first quarter earnings on May 11 — or five days ahead of the shareholder vote on the acquisition — it also spoke about its upcoming dividend. It announced a $0.12 cash dividend “payable on June 30, 2017, to shareholders of record on June 16, 2017.”

It then added a caveat: given that the proposed transaction may close prior to the record date “there is no guarantee that public shareholders will receive this dividend.”

Guess what: the deal closed last Tuesday and the shares delisted on Thursday.

DH’s actions stand in contrast to what CIBC did when it agreed to acquire Chicagobased PrivateBancorp Inc. — a deal that took almost one year to close and which went through at least two revisions before it received shareholder and regulatory approval earlier this month.

As an incentive to receive shareholder support it put a mechanism to ensure that PrivateBancorp shareholders, who accepted cash and CIBC shares in the offer, would receive the CIBC dividend of $1.27 a share provided they owned the shares on the record date. That dividend will be payable on July 28 to shareholders of record on June 28.

The acquisition is scheduled to close next Friday.

But DH’s shareholders can find some solace in what occurred to convertible debenture investors at Fortis Inc.

Four years back when Fortis acquired UNS Energy, a US$4.5-billion acquisition announced in 2013 and which closed in the fall of 2014 — the convert holders didn’t receive the initial, post acquisition-close, common share dividend payment. Under normal circumstances they would have received such a payment.

But circumstances weren’t made normal because of Fortis’s decision to change the record date which meant the convert holders couldn’t convert into common and receive the regular dividend. At the time Fortis said, “It’s not appropriate for us to also pay another dividend on top of the interest top-up.”

MIGHT NOT BE THAT THRILLED WITH THE ($25.50) PRICE.