When a company declares war on its founder, it must be prepared to suffer the consequences.
On 26 June, 2014, TCP announced their IPO price at $11 per share. On 1 July 2014, the shares began trading on the New York Stock Exchange. Today, the stock is thinly traded at about $0.81 per share and they are traded on something called OTC Link, commonly referred to as the pink sheets. TCP has a market capitalization of $23.1M
In 2014, Ellis Yan was the founder, president and CEO. Today he is the founder, suitor, and competitor!
Yan has offered $1.00 per share. Although it is a nice premium over today’s stock price, it is a far cry from the glory days of three years ago. The Board of Directors, of which Yan no longer controls, has voted unanimously to accept his offer.
Why?
Why would an independent Board of Directors sell (or merge) the company for $1.00 per share? The answers lie in a report hidden deep within the TCP website. The report appears to be a very honest assessment of the dire straits the company finds itself after ousting its founder.
- The merger will provide immediate liquidity, which the TCP Board found to be compelling compared to the continued risk of holding TCP shares given:
- The uncertainty and risks associated with TCP’s highly competitive industry
- Increased competition from larger, well-capitalized companies with significantly more resources than TCP
- The fact that the Yan Group has the ability to block any sale of TCP to a third party
- In the absence of the merger, Ellis Yan and Solomon Yan would continue their efforts to compete directly with TCP
- TCP hired Duff & Phelps as an independent financial advisor to the Board of Directors. In comparing other acquisitions in our industry: LSI’s acquisition of Atlas, Acuity’s acquisition of Juno, and Lumenpulse’s acquisition of FluxWerx, Duff & Phelps concluded the value for the company was $33.6 million to $37.2 million or in the range of $0.70 to $0.82 per share.
- 2014 Sales were $489M and dropped to $364M in 2016. Sales for 2017 were $174M for the first three quarters. If one assumes no seasonality, we can extrapolate an estimate of $217M total Sales for 2017—less than half of the 2014 number. Net income in 2014 was $12.5M compared to a net loss of $27.2M for the first three quarters of 2017. The trajectory is terrible.
- The Yan Group currently owns approximately 70% of the shares and effectively controls TCP’s ability to undertake transactions with third parties. The Yan Group has consistently made clear that it will not consent to the sale of TCP to a third party not controlled by the Yan Group.
- The sell price of $1.00 per share is 270% over the closing price of TCP Shares on December 11, 2017, the last trading day before execution of the Merger Agreement.
Approval of the merger agreement requires the affirmative vote of holders of at least 90% of the outstanding TCP Shares.
Although the Yan Group currently owns approximately 70% of the outstanding shares, there is no certainty that they will get enough votes to reach 90%. However, given the fact that Yan can block any other sale, a future acquisition by another company can be ruled out. It’s personal and Yan wants to be back in Suite 501. But the most important reason the shareholders should support the merger is that it turns Yan from a fierce competitor to a staunch ally.
The General Meeting will be held on 13 FEB in Switzerland. You can read the 116 page document here.