Knobias Clip Report (03-27-2008)
Submitted By Knobias ClipReport
CAPA: Possible Impending Acquisition Gives Investors an Opportunity
Captaris, Inc. (CAPA) is a leading provider of software products that automate business processes, manage documents electronically and provide efficient information delivery. Their product suite of Captaris RightFax, Captaris Workflow and Captaris Alchemy is distributed through a global network of leading technology partners. Their customers are engaged in financial services, healthcare, government and many other industries, and their products are installed in all of the Fortune 100 and many Global 2000 companies.
Over the past 12 months, the Company’s stock has seen a decline in value from the $6 area to lows in the mid $3’s. While the Company’s revenue has grown, the top line hasn’t yet transcended into the bottom line numbers needed for share valuation increases.
In August, Vector Capital reported a 9.9% stake through a Schedule 13D in the Company and said it may have interest in acquiring the communication software provider. The firm noted that it had been in discussions with management to suggest actions to maximize shareholder value.
Some of the action included a possible merger, sale of its assets, consolidation, business combination or a recapitalization or refinancing.
A month later, the two signed a confidentiality agreement. In connection with the agreement, Captaris would provide Vector Capital certain confidential and proprietary information concerning its business, financial condition, operations, assets and liabilities.
In October, CAPA reported preliminary revenue numbers for the third quarter which showed some weakness in their financial services business. The Company noted revenue would be$23 million which fell below the estimates of $27-$28 million. Besides the weakness in the financial services sector, lower than expected performance from channel partners in North America were cited as principal factors for the revenue shortfall. Following the announcement, shares declined from the $5.25 area to the mid $4’s.
When the Company reported third quarter earnings of 2c v 6c which beat the 0c estimate, many felt the Company overcame the revenue shortfalls with increased margins, but the quarter included a $1.6 million tax benefit which propped the earnings number for the quarter. Shares declined on the announcement, falling from $4.50 to the $4.00 area.
To increase their footprint and customer diversification, the Company acquired Oce Document for EUR 10.4 million. The Company noted that they felt the acquisition would be accretive to 2008 earnings.
On January 25th, the Company noted that they terminated the confidentiality pact with Vector which caused shares to plummet to 52 week lows in the low $3’s. After the announcement, new investors began to take stakes in the Company. Emancipation Capital announced a 5.1% stake and Renaissance Technologies reported a 7.75% stake.
But Vector wasn’t quite finished with the Company. They offered an unsolicited $4.75 bid to buy the Company. CAPA established a special committee of independent directors to evaluate strategic alternatives to further enhance shareholder value. Captaris announced that it will review Vector’s proposal as a part of its evaluation of strategic alternatives.
Vector responded by releasing the letter sent to Capataris.
“As Captaris’ largest shareholder with an ownership stake of 10.2%, Vector Capital is extremely disappointed that the Company continues to refuse to engage with us in any meaningful discussions about our proposal to purchase Captaris for $4.75 per share, or a 36.1% premium, as outlined in our March 17, 2008 letter to you. Our offer represents immediate and certain value, does not preclude the continuation of your exploration of other strategic alternatives, and thus would clearly be in the best interests of all Captaris shareholders. Vector has also received significant feedback from several other large Captaris shareholders who strongly support our proposal.”
The proposal does have a ‘Go Shop’ provisional which normally give the potentially acquired a chance to find a higher bid and increase shareholder value but with the safety of a fall back $4.75 price if they fail in doing so. With shares only trading in the $4.30 range currently, the name is certainly one to follow over the coming weeks. Investors would be wise to watch.
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