The Donerail Group LP (together with its affiliates, “Donerail”,
“We”, or “Us”), is one of the largest shareholders of Turtle Beach
Corporation (the “Company” or “Turtle Beach”) (NASDAQ: HEAR) with
beneficial ownership of approximately 7.4% of the Company’s
outstanding shares, and released the following statement on
December 15, 2021:
Spanning nearly four months since our last
public commentary in August, Donerail has attempted to work
constructively with the Turtle Beach Board of Directors (the
“Board”), the Company’s management team and the Company’s financial
advisors at Bank of America to offer value-creative solutions that
we believe would benefit all shareholders.
In these recent communications, Donerail has
provided a multitude of strategic options for the Company to
pursue. These included i) a re-affirmation of Donerail’s previously
disclosed bid to acquire the Company, ii) detailed terms under
which Donerail would feel comfortable to sign a limited NDA, and
iii) an offer to aid the Board in a strategic review to maximize
alignment with all shareholders.
It is with regret that we report that our
efforts for cooperation and productive conversations have largely
proven unsuccessful.
As has been publicly reported, the Board
rebuffed our previous offers to acquire the Company, which
culminated in an offer of $36.50 per share in August. In doing so,
the Board specifically cited two principal concerns: i) that the
Board “did not view Donerail’s proposed acquisition price to be
sufficient” and ii) that the Board “had concerns regarding
Donerail’s ability to consummate a transaction and its financing
sources.”1
We respectfully disagreed with the Board and
believed that an offer of $36.50 was clearly adequate and fair. In
hindsight, that offer looks particularly attractive, standing at a
nearly 70% premium from where Turtle Beach's stock price closed
yesterday.
With regard to financing concerns, while we have
provided the Board and its advisors with a comprehensive amount of
supporting documentation regarding our prospective financing
package that details our financing partners and structure, what we
have provided appears to be insufficient for the Board to relieve
them of ‘significant concerns’.
At this point, it is unclear what we could do
differently to provide the Board with sufficient comfort that
engaging with us as a bona fide prospective acquiror would be a
worthwhile endeavor on behalf of all shareholders.
With that being said, we remain interested
in acquiring the Company, and we will be submitting a revised LOI
to the Company in short order. Our revised LOI will likely
include an offer at a lower price than $36.50 per share but at
a price that we believe to be both an attractive premium to the
current trading price of Turtle Beach’s stock as well as to
the 30-day volume weighted average price of the shares.
As a large shareholder of the Company, we have
additional frustrations. The share price is hovering near 52-week
lows and has declined over 40% in the last six months. While demand
for the Company’s product continues to be robust, unforeseen
operational challenges have impaired profitability, surprising
management and creating a recent, violent sell-off of the shares.
Further, three of the Company’s peers have either been acquired or
have received acquisition offers in recent months (HyperX,
SteelSeries, and Razer); extrapolating the same multiples for
Turtle Beach would imply a share price for Turtle Beach that would
be exponentially higher than where the stock currently trades. In
our regular communication with other shareholders, we find that
there is meaningful discontent with the current status quo,
meaningful uncertainty about the future, and we are certain the
Board and management share similar frustration, as well.
Recognizing that we are in the midst of a global
consolidation in the video game peripheral space, we have suggested
for some time now that Turtle Beach should test the market to
assess the appetite of strategic buyers.
To the casual onlooker, it may appear that the
Turtle Beach Board has agreed that now is an appropriate time to
test the market, as well. In fact, numerous press reports in recent
months have detailed that Turtle Beach has hired Bank of America to
launch a sales process for the Company and that multiple parties
“are circling”, “some of the potentially interested parties [are]
‘deep pocketed’ players”, and that “Donerail’s bid marked the
bottom of the range of potential offer prices.” 2,3 Nonetheless,
the Company has not confirmed that such events are taking place,
causing confusion in the marketplace.
Given the continual speedbumps that the Board
created for us as a potential acquiror that seem to be in direct
conflict with the aforementioned press reports, we are highly
confused — as both a large shareholder and as a potential
acquiror — as to what the Board is actually seeking to
achieve.
In an effort to both clear the air for
shareholder confusion as well as provide a potential pathway for us
to engage with the Company in a comprehensive fashion that may
allow the Board to better assess our viability as a potential
acquiror, we call on the Company to publicly disclose that it is
running a Strategic Review process, if such a process is underway,
and if it is not, we call on the Company to initiate one in short
order.
Indeed, the Board continues to repeat its doubts
about the level of seriousness that we have in acquiring the
Company, and we, likewise, have doubts about the Board’s
willingness to sell the Company at an attractive price. We believe
that public disclosure of a Strategic Review process, while
potentially disadvantageous to our efforts of acquiring the
Company, would create appropriate accountability for this Board and
do well to provide shareholders with a full and transparent
understanding as to the actions that this Board is undertaking to
create shareholder value.
As a sign of our commitment to join an auction
process for the Company, Donerail is declaring its intent to enter
into a customary non-disclosure agreement in conjunction with a
publicly disclosed Strategic Review process, and we will also agree
to a customary standstill that would provide the Company with
surety of our standing as a willing acquiror while simultaneously
protecting our rights as shareholders to nominate directors at next
year’s Annual Meeting, should the need arise.
About Donerail
The Donerail Group LP is a Los Angeles-based
investment adviser that employs a value-oriented investment lens
focusing on special situations and event driven investments.
Investor Contact:
Wes Calvert, (310) 564-9992
________________________1 Turtle Beach Press Release dated
23-Aug-20212 “Donerail Prepared to ‘Go Nuclear’ in Its Bid for
Turtle Beach.” CTFN. 19-Jul-2021.3 “Multiple Parties Circling
Turtle Beach with Announcement Possible Next Month.” CTFN.
7-Oct-2021.
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