Part II – DIR’s Ralph Gammon and Xamcor’s Paul Carman Discuss the Lexmark / Kofax deal
An update to our previous discussion
Ralph: Yesterday, it was announced that a law firm focused on shareholder rights, Johnson and Weaver, is investigating whether the Kofax board truly maximized the value of the company by accepting the $1B bid from Lexmark. Is this anything to be concerned about?
Paul: I am not sure either party is worried at this point. After the deal was announced, most analysts and financial professionals seemed to feel the deal was fair, with the majority thinking that Kofax got the better end. The Johnson and Weaver contention is that Kofax did not go out to seek competing offers. In fact, Kofax may have analyzed this offer as a very good deal, and presented it to their Board with that opinion. Another company can now make a competing offer.
Ralph: Based on all the Xerox rumors I heard, I don’t think there is any question that Kofax sought other offers. My only concern is that Kofax may have wanted to sell before having to report its calendar Q1 (fiscal Q3) numbers, so it may have rushed to get something done. Of course, the only reason they would have rushed would be to save shareholder value, which clearly would have been hurt by another missed quarter.
Paul: I agree that prior to Lexmark taking an interest, Kofax must have spoken with others or been directly approached by other companies. However once Lexmark became serious Kofax would not have been able to speak with others. Once Lexmark did its due diligence timing for Kofax became less important, as Lexmark would have seen forecasts and results to date before making a firm offer. I am sure, however, that it must have been very awkward for Kofax when they had their annual partner event in Las Vegas several weeks ago. I can only assume at that time the deal structure was in place and either agreed to or very close to. I further assume that all components of the deal were not completed, so nothing could be told to the attendees. In speaking with some of these attendees, I know they feel let down and perhaps have lost a bit of trust and confidence. I think that is an issue that Lexmark needs to address very soon.
Ralph: So, basically, you are saying that Xerox was basically out of play by the time Transform was held a couple weeks ago. That’s interesting. Xerox was there as a major sponsor and I had the opportunity to interview their global offering manager for workflow automation, who had great things to say about Kofax. But, it turns out the event was kind of a big ruse, because at the time you think they were fairly committed to selling to Lexmark?
Paul: No, I certainly don’t know for sure. But when we look at any buy cycle, it takes more than 1 week to get an agreement together, to pass legal review, and to get all Board approvals. This period is even longer for a public company. However, as you have said, the talk about a Kofax-Lexmark combination were rumors; we actually have no validation of how much truth there was to these rumors. What I am saying is that if, before and during Transform, the deal with Lexmark was being negotiated, Kofax could NOT inform Xerox or any other party or partner. I am sure they were bound by the LOI or Terms Sheet from Lexmark to not discuss the deal or negotiation. So in effect Kofax was caught in a very touchy position. The fact that your discussion with Xerox was held and so positive towards Kofax is even more verification that Xerox was in this “quiet” period.
Ralph: So, the bottom line I gather is that you think Lexmark’s offer represents a fair valuation and that this filing from Johnson and Weaver is really much abo about nothing? And/or do you see harbingers of higher a bid forthcoming from someone else—possibly Xerox?
Paul: I think the consensus of opinion is that it will be viewed as a valuation and a fair deal. The filing, as I understand it, simply challenges Kofax on the point of did they seek other potentially higher bidders. We can’t assess whether that had been done, or if it is reasonable to do if Kofax was bound by an agreement not to disclose. Regarding new bidders for Kofax, that certainly is a possibility. Given that the Kofax Board has approved the Lexmark offer, it would take substantially improved offer from a large recognized company to alter the current process. However it certainly is possible!
See the original post here http://xamcor.com/?p=711