Following the announcement of Comverge’s agreement to be purchased by private equity firm H.I.G. Capital, some lawyers and analysts are wondering whether the energy management company’s shareholders were given a fair deal for their shares of common stock.
In what some are calling a “take-under,” the definitive acquisition agreement made public March 26 involves an all-cash transaction with a total equity value of about $49 million. The deal is expected to commence with a tender offer within 10 to 20 days following the announcement of the deal.
For their part, Comverge appears satisfied with the deal they struck, with company officials noting that the $1.75 price per share they agreed to is an 18 percent premium when compared to the average price over the last 30 days.
H.I.G. Capital will also provide Comverge with $12 million in debt financing in a separate transaction not contingent on the acquisition being completed, according to reports.
The agreement includes a “go shop” clause that would allow Comverge 30 days to find a better price.
“Today’s announcement is the culmination of an extensive review of financing and strategic alternatives available to Comverge,” Comverge Chairman Alec Dreyer said in a statement. “We are pleased to have found a solution to the company’s immediate need for capital to fund ongoing operations that not only preserves value for stockholders but also provides immediate cash value to stockholders. The transaction addresses the risks associated with the company’s liquidity position, provides for our financial viability going forward and allows Comverge to continue to execute on its business plan with the financial backing of H.I.G. Capital.”
Comverge also reported that its independent auditor doubted the company’s ability to continue to operate due to a combination of cash flow and debt-related issues. Without the H.I.G. Capital agreement, Comverge would have been unable to raise needed capital to fund its operations, thus putting stockholders at additional risk of loss, according to an announcement by Comverge.
The same day the possible acquisition was announced, a host of law firms posted announcements that they plan to investigate the deal to ensure that Comverge shareholders were being offered a fair price in the H.I.G. Capital agreement.
Boston-based securities law firm Block & Leviton LLP commenced an investigation into the Comverge board of directors for possible breaches in fiduciary duties stemming from the agreement to go private with Peak Merger Corp., an arm of H.I.G. Capital.
The law firm said in a press release that they wish to determine whether Comverge directors failed to maximize shareholder value by agreeing to the proposed purchase at the price of $1.75 per share. That offer is a 7 percent markdown from Comverge’s share price March 23, and significantly lower than the company’s price target of $2.00 per share March 16, according to Block & Leviton.
According to another securities firm, The Briscoe Law Firm, which made an announcement with litigation firm Powers Taylor, Comverge stock went as high as $5.06 per share as recently as April 2011. This is nearly 350 percent higher than the amount offered to shareholders now.
Another firm interested in investigating the agreement, New York City-based Faruqi & Faruqi, cited unnamed analysts who said the inherent price of Comverge stock could be as high as $8.65 per share. Each of these law firms encouraged owners of Comverge common stock to contact them for additional information.
March 15, a report by Reuters said that Comverge’s fourth-quarter 2012 profits came out ahead of analyst expectations, led by growth in the company’s commercial and industrial sectors. Those reports found that the company posted a net income of $4.9 million, or 18 cents per share – up from a loss of about $9.4 million the previous year.
Comverge specializes in demand response, smart grid and energy management technology. Early in 2012, Comverge enrolled its one-millionth customer in its demand response programs. Also in January 2012, the company struck a deal to deliver 65 MW of demand response to PECO.
H.I.G. Capital is a private equity firm based in Miami, Fla. managing about $8 billion in assets.