UTR, LLC Sends Second Letter to Outdoor Channel's Board of Directors
UTR, LLC Sends Second Letter to Outdoor Channel's Board of Directors
- Reiterates Demands for Immediate Halt to Proposed Merger with InterMedia Outdoor Holdings, LLC
- In Absence of Public and Transparent Process, Insists Upon Maximum Liquidity for Outside Shareholders
NEW YORK--(BUSINESS WIRE)-- UTR, LLC ("UTR"), owners of more than two percent of the outstanding shares of Outdoor Channel Holdings, Inc. (NAS: OUTD) (the "Company" or "Outdoor Channel"), today sent a second letter to the Company's Board of Directors (the "Board") regarding Outdoor Channel's proposed merger with InterMedia Outdoor Holdings, LLC ("IMOTSC"). The full text of the letter can be found below:
February 27, 2013
Board of Directors
Outdoor Channel Holdings, Inc.
43445 Business Park Drive, Suite 103
Temecula, CA 92590
We are following up on our letter dated February 12, 2013, in which we detailed our numerous concerns regarding the current merger proposal of Outdoor Channel Holdings, Inc. (the "Company" or "Outdoor Channel") with InterMedia Outdoor Holdings, LLC ("IMOTSC"). As a long term holder of greater than two percent of the Company's common stock for over three years, we believe we deserve to have our concerns adequately addressed. In this regard, your communication to date has been less fulsome than we would have expected given our shareholder status as well as the tenure and scope of our relationship. Frankly, it has failed to adequately address the fundamental crux of our position: inadequate valuation and unfair treatment of the outside shareholders. Furthermore, based on multiple communications with other large, long-term public shareholders, we are confident many other shareholders share our sentiment.
It has been over two weeks since you received our letter and we have yet to receive a response, let alone a refutation, to the multitude of legitimate grievances that have been outlined. The only Company communication that could remotely be considered a response was at best apathetically insufficient, and at worst, an intentional avoidance of the issues, in the form of a sheepish and misleading 8K filed with the SEC on February 25, 2013.While this is disappointing, it is certainly not surprising, as the absence of direct correspondence is just another example of the total lack of concern that you, the Board of Directors of Outdoor Channel (the "Board"), have shown for the interests of outside shareholders.
SET THE RECORD STRAIGHT
Nevertheless, as it relates to the assertions made by the Company within this misleading filing, allow us to address them head on. Contrary to your claims, "Party A", an investor group of which UTR, LLC ("UTR") was a part, maintained an open dialogue with the Company's financial advisor and presented Outdoor Channel with real proposals, the financing for which was undisputable, at a significant premium to what is on the table today and being presented to shareholders. These proposals were comprehensive, despite the unorganized auction process and the deficiency of information provided by the Company and its advisors to potential bidders. The poor process being conducted precluded Party A from offering the most meticulously detailed offer possible. However, Party A clearly would have been more than ready to "sit down at the table" and hash out a mutually acceptable deal had the Company been more forthcoming with its willingness to do so.
To provide further color and correct any mischaracterizations regarding its commitment to finalizing a transaction, allow us to outline the following actions that Party A took. The group:
- Indicated clearly to the Company's financial advisor that its lead investor, a very substantial media executive and investor, would supply a full equity backstop.
- Following that equity commitment; Jointly conducted in-depth due diligence with Outdoor Channel, including the Company's management, debt providers and financial advisors.
- Notified the Company, subsequent to the conclusion of the due diligence sessions, that it would select among its finalized debt financing term sheets - any of which were adequate to fund the transaction.
- Committed on August 7th, 2012 to submit its final proposal to the Company's financial advisor within one week.
However, several days in advance of the agreed upon deadline, the Company's financial advisor abruptly notified Party A that the Board had accepted another, less attractive offer1. As disclosed in the Company's S-4, the Board entered into a binding exclusivity agreement on terms that offered less liquidity and overall economic value, without having conducted anything more than superficial and insufficient due diligence with the other bidding party, which would be customary in a transaction containing an equity component. To reiterate, Party A possessed all necessary equity and debt to complete its all cash proposal which was clearly articulated to the Company's management and the Board's financial advisors. Had the Board honored the timeline that was laid out by its financial advisor, or even communicated a shorter timeline, Party A was prepared to submit, as referenced in the proxy, an offer that provided more value and liquidity than the proposal currently being presented to shareholders.2
To confirm this account of the communications held between the Company and Party A, and to allow for every shareholder to determine on their own whether or not the Board effectively discharged its duties to maximize shareholder value, we demand that all significant activity between UTR and the Company be released. As a result, shareholders will be able to rightly assess the value UTR endeavored to bring to all shareholders.
FURTHER DISREGARD FOR SHAREHOLDER RIGHTS AS A WHOLE
With roughly half of all outside shareholders and the stock's sole financial analyst already questioning the seemingly meager value offered by the proposed deal3, the proxy materials recently filed by Outdoor Channel should have provided an opportunity for current shareholders to review the financial performance of both companies and, subsequently, to calculate the value of the resulting stub equity position they would effectively be forced to accept. However, just as the initial bid process was characterized by a lack of transparency, the financial data similarly fails to offer a clear, unobstructed view of the Company's financial position. Rather than including fully audited financials to verify the calculations used to determine the companies' fiscal health, the Board elected to include un-verified, unaudited numbers.
We certainly recognize that as a public company registered with the SEC, Outdoor Channel technically has 120 days from the close of its fiscal year to provide audited financial information. However, the actions the Board has taken in an attempt to complete the proposed transaction within the 120 day window, ultimately allowing it to avoid having to provide shareholders with audited data, is disingenuous to say the least. We have already heard several different estimates of synergy cost-savings and some unarticulated savings in advertising. So what exactly are they?
Without fully audited financial information, it is impossible for shareholders to reasonably value the new equity. Are we to simply "trust you?" These actions would be deemed highly unacceptable under any circumstances, but they are considerably more egregious in the current scenario given the blatant disregard shown for shareholders. We demand that you explain why rushing to complete this deal is in the best interests for all shareholders.
As the Board of Directors of Outdoor Channel, you have a fiduciary responsibility to your shareholders and we ask that you behave accordingly, by providing honest, clear communication, and by taking the time required to produce audited, unambiguous financial numbers related to the proposed transaction.
REEVALUATE THIS MERGER
We stand firm in the original requests outlined in our initial letter, and we urge the Board to take the following actions:
- Immediately cease any additional steps towards completion of the merger at this time;
- Retain an independent financial advisory firm to offer a fairness opinion to determine the true value of the Company, and that these findings be made available to the public; and
- Run an open bid process, led by the Company's Special Committee of disinterested directors, that markets the Company to a broad selection of potential qualified buyers.
While refusing to individually address the specific grievances we articulated on behalf of UTR and several other significant shareholders two weeks ago, the Company further demonstrated its failure to operate in a transparent manner beneficial to all shareholders by including unaudited financials with its recently filed proxy materials.
GET IN THE BACK OF THE LINE
If you refuse to engage in a dialogue with us, if you insist on providing only unaudited numbers, and if you remain resolved to stay the course without completing a robust process to maximize value for all shareholders, we urge you, at the very least, to allow for outside shareholders and disinterested parties to receive the maximum liquidity possible first.
As this merger would completely devastate the solid fundamentals that first attracted investors to the Company - a pure-play cable channel with a low debt-to-equity profile - outside shareholders who were not privy to the backroom dealings used to arrive at this agreement should not be forced to take shares in the resulting new company, an entity that will be saddled with significant long term debt, have little available cash on hand, and carry exposure to a struggling publishing unit.
Rather than elect to rollover their entire stake in Outdoor Channel into shares of the resultant entity, an action that would have reflected a genuine commitment to the newly formed company, insiders are taking approximately 40 percent of the fixed cash allotment made available in the deal for themselves. These insiders have knowingly negotiated a deal that prioritizes their own interests at the expense of the remaining shareholder base.
Surely the same insiders who crafted this arrangement, without the aid of the Special Committee or a public auction process, would be confident enough in a merger of their own creation to rollover the sum of their position? Why would these individuals not want to take full advantage of the hypothetical synergies, strategic advantages, and therefore upside that will allegedly stem from this deal? In a merger that they themselves have orchestrated, why would they not convert the entirety of their current position in Outdoor Channel into shares of the new company? This is a concept we fail to understand, and we respectfully ask the insiders to articulate their reasoning for the benefit of the rest of the shareholders. If they don't have the confidence to take on the risk, how do they expect us to be at all comfortable with this illiquid stub equity we are effectively being forced into owning?
We urge the Board and other insiders to put their own money where their mouth is, not ours. Allow outside shareholders to elect their desired consideration first from the fixed $115 million cash pool before insiders can elect to receive cash for their shares. This would limit outside shareholders' exposure to the liquidity risks we perceive to be strongly associated with the new company's stub equity position.
If the Board is determined to forge ahead with the proposed transaction, we hope that you will now put the interest of all shareholders first and provide the maximum liquidity before insiders take any of the available cash.
1 Outdoor Channel Holdings, Inc., Form S-4 Registration Statement (filed Nov. 21, 2012), p. 69, from SEC web site, http://www.sec.gov/Archives/edgar/data/1562300/000119312512478810/d440728ds4.htm
2 Ibid, 68
3 James, Sarah Barry. "Analyst on Outdoor Channel merger: Many things 'just don't smell right'" SNL Kagan 20 February 2013, http://www.snl.com/Interactivex/article.aspx?ID=17012557
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