ARC logo
By Ed Avis
ARC has been moving towards leaving the public market since April, and now the board has set the date of the official shareholder vote on the move for November 21 at 10 a.m. Pacific time.
The vote may conclude the effort that began when a group of investors – mostly company insiders – offered to buy the outstanding shares of the company that they didn’t already hold for $3.25 per share. They later upped the offer by 15 cents per share, and the ARC board accepted the deal in August.
When the acceptance of the new offer of $3.40 was announced on August 28, ARC stock was trading for $3.35 per share, so the investors’ offer was a nickel per share higher. But the price has slowly climbed since then, and on October 24, it closed at $3.43 per share.
While the price could certainly change before the November 21 vote, the investor group would be getting a 3-cent-per-share discount if things stay the same.
An M&A advisor in the printing industry, who asked not to be named and is not involved with this deal, says the fact that the current stock price is higher than the offer price may suggest that some investors feel a higher offer will be coming.
However, this advisor also noted that if a major investor decided to suddenly sell a large quantity of shares to take advantage of the slight difference between the stock price and the offer price, the stock price would probably quickly drop, so that investor would not get the expected return, especially considering the relatively small quantity of ARC shares that trade on any day. On the other hand, if shareholders approve the $3.40 per share price, that will be locked in and investors can cash out at a known price.
Joel Salus, a reprographics industry veteran and a consultant to acquiring companies, said he does not think another, higher offer is forthcoming. And he feels the shareholders will ultimately accept the current offer.
“I don't see anything standing in the way of this deal happening,” Salus says.
The investor group, called TechPrint Holdings, consists of ARC CEO Kumarakulasingam "Suri" Suriyakumar, COO Dilantha Wijesuriya, CFO Jorge Avalos, CTO Rahul Roy, a private investor named Sujeewa Sean Pathiratne, and others.
ARC, which rolled up dozens of leading reprographic firms in the 1990s, has been a public company since 2005.
Lawyers Investigating
When the board accepted the revised offer of $3.40 per share, law firm Ademi LLP announced that it was investigating ARC “for possible breaches of fiduciary duty and other violations of law in its transaction with the acquisition group.”
A man who answered the phone at Ademi on October 23, but who did not want to be identified, said that investigation is on-going but would not provide any further details. He said that ARC shareholders interested in joining the investigation can learn more at https://www.ademilaw.com/case/arc-document-solutions-inc
Other law firms also are investigating, including Kahn, Swick and Foti, LLC; Halper Sadeh LLP; and Kuehn Law.
However, Salus notes that these legal maneuvers are common and probably will not derail the deal.
“That happens on almost every single going-private transaction,” Salus says. “There are law firms that do nothing other than that - kind of like personal injury law firms. Those actions won't prevent the deal from going to completion.”
What’s Next?
Assuming the deal goes through, ARC will have more latitude to operate as a private company. And it will not have to deal with the voluminous and costly SEC requirements, such as quarterly reporting, that public companies face.
Furthermore, in the press statements regarding the transaction, it was reported that a group of banks has committed to provide $185 million in funding for the acquisition group. There are 43 million shares outstanding, and the acquisition group already controls nearly 20 percent of those shares, meaning there are approximately 34.5 million shares they don’t already own. At $3.40 per share, that means the group will have to pay about $117 million to close the deal. That leaves $68 million available from the banks.
What will the newly private ARC do with that potential pot of money? The possibilities range from nothing to acquiring more reprographics firms to acquiring companies outside of reprographics, such as sign shops, copy shops or other related businesses.
Whatever happens, assuming the transaction closes, it will be a new era for ARC.