- East Asset Management to make $25
million strategic investment into Rand Capital in exchange for
approximately 8.3 million shares of Rand Capital common stock;
$3.00 per share purchase price represents a 33% premium above
yesterday’s closing price
- Rand to externalize management:
retaining current team and creating a lower expense-to-asset ratio
structure
- Board of Directors plans to declare
special dividend of an estimated $1.50 per share in combination of
cash and stock; intends to establish ongoing regular cash dividend
policy post close
- Transactions create greater scale,
immediately strengthen net investment income, provide additional
investment expertise and establish expanded sourcing platform for
growth
Rand Capital Corporation (Nasdaq:RAND) (“Rand” or “Rand Capital”
or the “Company”), announced today that the Board of Directors has
entered into a stock purchase agreement to sell approximately 8.3
million shares of Rand Capital’s common stock to East Asset
Management, LLC (“EAM”) for $25 million in cash and assets. The
purchase price of $3.00 per share represents a 33% premium over the
January 24, 2019 closing price of $2.26 per share. The sale and
issuance of common stock pursuant to this stock purchase agreement
is subject to shareholder approval and receipt of required
regulatory approval from the U.S. Small Business Administration
(“SBA”).
Erland (“Erkie”) Kailbourne, Chairman of the Board of Rand
Capital, noted, “We believe the strategic investment by East Asset
Management into Rand is both a testament to the success of our
organization and a transforming opportunity for future growth. The
additional assets provide us greater scale with more
income-producing instruments that are immediately accretive to net
investment income, while the cash enhances our liquidity and
enables further expansion of our investment portfolio. We also
expect the externalization of management to reduce our
expense-to-asset ratio, thereby improving our earnings power.
Following the closing of the transactions, we intend to use cash
and stock to pay a special dividend to shareholders and also intend
to institute on-going cash dividends. The Board of Directors is
unanimously recommending that shareholders approve the
transactions.”
Adam Gusky, Chief Investment Officer at East Asset Management,
said “Our investment in Rand demonstrates our confidence in the
potential of the Company, as well as our continued dedication to
Buffalo and Western New York. With additional capital resources, an
enhanced investment team, streamlined operations and a
shareholder-friendly structure, we are excited about Rand’s
potential to deliver consistent shareholder value over time.”
The Proposed Transactions
EAM plans to purchase approximately 8.3 million in Rand shares
for $25 million consisting of approximately $13.5 million in cash
and the contribution of approximately $11.5 million in portfolio
assets. The contributed portfolio assets are income-producing
instruments that were originated in the last 48 months and will
immediately increase net investment income for Rand. EAM will hold
approximately 57% of shares outstanding following the share
purchase.
A new entity, Rand Capital Management, LLC (“RCM”), will be
established as an external management company and will be retained
by Rand Capital to be its investment advisor. RCM’s operations will
remain in Buffalo, New York, with Allen F. “Pete” Grum as President
and Chief Executive Officer, and Daniel P. Penberthy as Executive
Vice President and Chief Financial Officer, for RCM. They will
continue as well as members of RCM’s investment committee. The
retention of RCM to externalize the management structure is also
subject to shareholder approval.
The proposed transactions, which are subject to certain
shareholder and regulatory approvals and consents, is expected to
close during the third quarter of 2019. Following the close, Rand
will continue to trade on the Nasdaq under its ticker “RAND” and
will operate as an externally-managed business development
corporation (“BDC”).
Post Transaction Restructuring to Regulated Investment
Company (RIC), Planned Special Dividend to Shareholders and Intent
to Pay Ongoing Regular Cash Dividends
In connection with closing and contingent upon meeting certain
tax-related conditions, Rand intends to elect to become a regulated
investment company (“RIC”) for U.S. federal tax purposes enabling
the pass through of capital gains and investment income to
shareholders without payment of corporate-level U.S. federal income
tax by Rand.
To qualify as a RIC, Rand’s Board of Directors intends to
declare a special dividend of an estimated $22 million, or $1.50
per share, representing its current estimate of accumulated
earnings and profits since inception. The dividend amount is
subject to final determination of the estimate after closing. The
dividend is expected to be comprised of 20% cash and 80% stock.
Each shareholder will have the opportunity to elect to receive the
dividend in cash or additional shares of Rand stock. The exact
distribution of cash and stock to any given shareholder will be
subject to limitation on the aggregate amount of cash and stock
available for distribution, as well as the individual and
collective elections by shareholders. The entire distribution will
be taxable to shareholders regardless of whether it is received in
cash, stock, or any combination thereof.
In addition to the externalization of management, the intent of
the restructuring and addition of yielding assets is to enable Rand
to become a regular dividend-paying BDC. Rand intends to pay
greater than 90% of its investment company taxable income in
regular cash dividends to shareholders.
Future Growth Strategy
Daniel P. Penberthy, Executive Vice President and CFO, of Rand
Capital, commented, “Following the establishment of an external
management company, we believe our expanded resources will broaden
our potential pipeline of investment opportunities in order to
build our portfolio and grow net investment income. Strategically,
we expect to advance our efforts to increase our income producing
investments that can support a regular cash dividend for
shareholders and complement our equity investments that drive
capital appreciation.”
Pete Grum, President and CEO, concluded, “This is a
transformational event for Rand Capital and we believe East Asset
Management is a perfect partner. The benefits of their investment
and management talent provide the platform for future growth that
will benefit Rand shareholders. We hope you are as excited to be a
part of this evolution as we are.”
CONFERENCE CALL AND WEBCAST
Rand Capital will host a presentation only conference call and
webcast at 11:00 a.m. Eastern Time today to review the
transactions. The review will be accompanied by a slide
presentation, which will be available on Rand’s website at
www.randcapital.com under “Investor Relations”.
Rand’s conference call can be accessed by calling (201)
689-8263. Alternatively, the webcast can be monitored on Rand’s
website at www.randcapital.com under “Investor Relations”.
A telephonic replay will be available from approximately 2:00
p.m. Eastern Time on Friday, January 25, through Friday, February
1, 2019. To listen to the archived call, dial (412) 317-6671, and
enter conference ID number 13686198. A transcript of the call will
be placed on Rand’s website, once available.
About Rand Capital
Rand Capital (Nasdaq: RAND) is a Business Development Company
(BDC) with a wholly-owned subsidiary licensed by the U.S. Small
Business Administration (SBA) as a Small Business Investment
Company (SBIC). Rand focuses its equity investments in early or
expansion stage companies and generally lends to more mature
companies. The Company seeks investment opportunities in businesses
with strong leaders who are bringing to market new or unique
products, technologies or services that have a high potential for
growth. Additional information can be found at the Company’s
website where it regularly posts information:
http://www.randcapital.com/.
About East Asset Management
East Asset Management (EAM), formed in 2010, is dedicated to
investing in private & public market securities and has formed
multiple investment vehicles that provide capital to a variety of
industries including energy, media, real estate, hospitality,
sports and entertainment. EAM has developed a unique and
proprietary network for sourcing investment opportunities,
including opportunities in the private credit/current yield space,
leveraging both its in-house and affiliated investment talent and
capabilities. EAM is an entity owned by Terry and Kim Pegula,
owners of Pegula Sports & Entertainment: the management company
streamlining key business areas across all Pegula family-owned
sports and entertainment properties including the Buffalo Bills,
Buffalo Sabres, Buffalo Bandits, Rochester Americans, Harborcenter,
Black River Entertainment, ADPRO Sports, PicSix Creative agency and
numerous hospitality properties.
Cautionary Statement Regarding Forward-Looking
Statements
This press release contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than historical facts, including but
not limited to statements regarding the expected timing of the
closing of the proposed transactions; the ability of the parties to
complete the proposed transactions considering the various closing
conditions, including receipt of necessary shareholder approvals
and approval from the Small Business Administration; the intention
of Rand Capital to elect to be become a regulated investment
company for U.S. federal tax purposes; the intention to declare and
pay a special cash and stock dividend upon the closing of the
proposed transactions; the intention to pay a regular cash dividend
after the completion of the proposed transactions; the expected
benefits of the proposed transactions such as a lower
expense-to-asset ratio for Rand Capital, increased net investment
income, availability of additional resources, expanded access to
and sourcing platform for new investments and streamlining of
operations under the external management structure; the business
strategy of originating additional income producing investments;
the competitive ability and position of Rand Capital following
completion of the proposed transactions; and any assumptions
underlying any of the foregoing, are forward-looking statements.
Forward-looking statements concern future circumstances and results
and other statements that are not historical facts and are
sometimes identified by the words “may,” “will,” “should,”
“potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,”
“estimate,” “overestimate,” “underestimate,” “believe,” “could,”
“project,” “predict,” “continue,” “target” or other similar words
or expressions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove to be
incorrect, actual results may vary materially from those indicated
or anticipated by such forward-looking statements. The inclusion of
such statements should not be regarded as a representation that
such plans, estimates or expectations will be achieved. Important
factors that could cause actual results to differ materially from
such plans, estimates or expectations include, among others,
(1) that one or more closing conditions to the transactions
may not be satisfied or waived, on a timely basis or otherwise,
including that the SBA may not approve the proposed transactions or
that the required approvals by the shareholders of Rand Capital may
not be obtained; (2) the risk that the proposed transactions
may not be completed in the time frame expected by parties, or at
all; (3) the risk that Rand Capital may be unable to fulfill
the conditions required in order to elect to be treated as a
regulated investment company for U.S. federal tax purposes;
(4) uncertainty of the expected financial performance of Rand
Capital following completion of the proposed transactions;
(5) failure to realize the anticipated benefits of the
proposed transactions, including as a result of delay in completing
the proposed transactions; (6) the risk that Rand Capital is unable
to declare the special cash and stock dividend or pay regular
dividends on a going forward basis; (7) the occurrence of any
event that could give rise to termination of the stock purchase
agreement; (8) the risk that shareholder litigation in
connection with the proposed transactions may affect the timing or
occurrence of the contemplated transactions or result in
significant costs of defense, indemnification and liability;
(9) evolving legal, regulatory and tax regimes;
(10) changes in general economic and/or industry specific
conditions; and (11) other risk factors as detailed from time
to time in Rand Capital’s reports filed with the Securities and
Exchange Commission (“SEC”), including Rand Capital’s annual report
on Form 10-K for the year ended December 31, 2017,
quarterly reports on Form 10-Q, current reports on
Form 8-K and other documents filed with the SEC.
Consequently, such forward-looking statements should be regarded as
Rand Capital’s current plans, estimates and beliefs. Except as
required by applicable law, Rand Capital assumes no obligation to
update the forward-looking information contained in this
release.
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in
respect of solicitation of proxies from shareholders of Rand
Capital common stock in respect of the proposed transactions. In
connection with these transactions, Rand Capital intends to file a
proxy statement in preliminary and definitive form with the SEC
that will contain important information about the proposed
transactions and related matters, and deliver a copy of the proxy
statement to its shareholders. INVESTORS OF RAND CAPITAL ARE URGED
TO READ THE DEFINITIVE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS
CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTIONS AND RELATED MATTERS. Investors may obtain a free copy
of these materials when they are available and other documents
filed by Rand Capital with the SEC at the SEC's website
at www.sec.gov or at Rand Capital’s website
at www.randcapital.com. Investors
and security holders may also obtain free copies of the proxy
statement and other documents filed with the SEC from Rand Capital
by calling Investor Relations at 716-843-3908.
No Offer or Solicitation
This is not, and under no circumstances is it to be construed
as, a prospectus or an advertisement and the communication of this
press release is not, and under no circumstances is it to be
construed as, an offer to sell or a solicitation of an offer to
purchase any securities in Rand Capital.
Participants in the Solicitation
Rand Capital and its directors, executive officers, employees
and other persons may be deemed to be participants in the
solicitation of proxies from the shareholders of Rand Capital
common stock in respect of the stock purchase and management
externalization transactions. Information regarding Rand Capital's
directors and executive officers is available in its definitive
proxy statement filed with the SEC on March 8, 2018, in connection
with its 2018 annual meeting of shareholders. Other information
regarding persons who may be deemed participants in the proxy
solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
the proxy statement and other relevant materials to be filed with
the SEC when they become available.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190125005080/en/
Company:Allen F. ("Pete") GrumPresident and CEOPhone:
716.853.0802Email: pgrum@randcapital.com
Investors:Deborah K. Pawlowski / Karen L. HowardKei
Advisors LLCPhone: 716.843.3908 / 716.843.3942Email:
dpawlowski@keiadvisors.com / khoward@keiadvisors.com
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