The proposed management buyout of Pivot Technology (TSXV:PTG) undervalues the company, says Cantor Fitzgerald Capital analyst Ralph Garcea.
In a press released issued on Tuesday, Pivot Technology announced it had entered into an arrangement with PTS Holdings Corp, a company controlled by a group of investors that includes two of the company’s founders.
Under the terms of the proposed agreement, current holders of Pivot shares would recieve one preferred security with a face value of $10.00 for every 14.286 common shares of Pivot, representing $0.70 a share. The company said a fairness opinion from Deloitte said the deal was in the best interest of the company.
“We agree with the conclusions of the fairness opinion from Deloitte and believe that the preferred securities represent an attractive investment opportunity for our shareholders,” said special committee chair Doug Stuve. “Pivot has a track record of generating positive cash flow and this transaction provides an opportunity for Pivot’s shareholders to receive significantly enhanced distributions derived from Pivot’s underlying businesses.”
Garcea says he disagrees with the assessment of Deloitte and the special committee.
“We believe the mgmt. proposal significantly undervalues PTG shares. As such, we would look for a strategic buyer or private equity to step in and provide a superior proposal,” he says, adding that the company would benefit from an auction process to maximize value for shareholders.
In a research update to clients today, Garcea maintained his “Buy” rating and one-year target price of $1.50 on Pivot Technology Solutions, implying a return of 183 per cent at the time of publication.