The Donerail Group Responds to Turtle Beach
August 26 2021 - 4:05PM
The Donerail Group LP (together with its affiliates, “Donerail”,
“We”, or “Us”), one of the largest shareholders of Turtle Beach
Corporation (the “Company” or “Turtle Beach”), responded today to
Turtle Beach’s press release issued on August 23, 2021:
While Turtle Beach stated in its release that
Donerail’s public statements had been “misleading”, the Company
failed to detail how any of Donerail’s previous public statements
were misleading and, instead, proceeded to present its own
narrative misrepresenting Donerail’s acquisition efforts to
date.
We read Turtle Beach’s August 23rd press release
with great disappointment, as the Turtle Beach Board of Directors
(the “Board”) has grossly distorted the facts and circumstances
regarding Donerail’s acquisition efforts in order, we believe, to
further its self-serving entrenchment efforts.
In the Company’s release, we are at least
gratified that the Board acknowledged its rejection of our revised,
heightened $36.50 offer, which it claims was due to fact that the
Board “did not view Donerail’s acquisition price to be sufficient”.
We believe all shareholders deserve an explanation as to why this
Board outright rejected a proposal that would provide a 42% premium
from last Wednesday’s share price and a 32% premium from
yesterday’s closing price.
And while our principal concern begins and ends
with the Company’s distorted view of value and stubborn refusal to
explore value-maximizing acquisition offers, the balance of the
Company’s August 23rd press release served as an unexpected effort
to misdirect shareholders on the recent series of events,
introducing significant concern regarding the Board’s ability to
credibly uphold its fiduciary obligations to shareholders.
-
Financing Capabilities. In its press release,
Turtle Beach stated that it had “concerns regarding
Donerail’s…financing sources” and that “the Company has not yet
received satisfactory evidence of Donerail’s financing sources”.
The truth is that although the Company did initially focus on our
financing capabilities, we subsequently worked collaboratively with
Turtle Beach’s financial advisor, Bank of America, to provide them
exhaustive details regarding the financing construct for our
proposal and how we planned to secure the debt and equity capital
it contemplated.Ultimately, the Board’s financial advisor
communicated to us on July 9th, 2021, that the Board’s concerns
about our ability to finance our proposal to acquire the Company
had been largely allayed, that it considered Donerail’s proposal
both “credible” and “fundable”, and that it was prepared to move
forward to discuss price.We had not heard any further challenges to
our ability to finance our proposal until the Company’s August
23rd, 2021, press release. Rather, what was, in fact, made clear
was that on July 9th the Board rejected our $34.50 offer price and
refused to engage with us unless we “meaningfully” increased our
offer price. This critical July 9th interaction clearly indicated
that our financing was not a principal concern in the least: price
had become the primary focus.As a result of the July 9th rejection
of our $34.50 offer price, we proactively chose to bid against
ourselves, and we raised our offer price to $36.50 per share,
subject to confirmatory due diligence. Naturally, we understood
that the process of conducting such due diligence would entail
executing a non-disclosure agreement (“NDA”). Unfortunately, the
Board proposed an NDA that we doubt any rational person would
sign.
- The
NDA. In its press release, Turtle Beach detailed that
“Donerail has…refused to further engage with Bank of America on a
customary NDA”. Such a statement grossly misrepresents the cadence
and history of discussions between the Company and Donerail. The
first iteration of the NDA proposed by the Board was far from
“customary”. It not only included a highly restrictive two-year
standstill, which is off-market for a financial buyer, but it also
included a provision that would make us liable for a $5,000,000
cash penalty merely by alleging that we had breached its
confidentiality provisions – without any need to prove it. Such an
egregious term that creates an uncontrollable, significant
liability is not typically found in an NDA. We doubt any
sophisticated party would be willing to agree to any such clause,
and we advised the Board that we certainly would not.The offensive
$5 million presumption of liability clause remained in the proposed
NDA until August 14th, 2021, and when the Board finally agreed to
remove it from the NDA, the restrictive two-year standstill
remained. At the same time, however, the Board clearly indicated
that our $36.50 offer price was still unacceptable. This Board’s
confusing actions forced us to continue to question its good faith
in pursuing a potential transaction. What is the point of signing
an NDA to incur meaningful restrictions if the Board is telling
you, in no uncertain terms, that the process will be futile because
your price has already been rejected?Lastly, the Company’s press
release detailed an unwillingness by Donerail to provide a Due
Diligence Request List to Bank of America. Such a complaint is
quite trite. Given we have limited desire to sign an NDA with the
Company assuming their continued rejection of a $36.50 offer,
providing the Company with a Due Diligence Request List that they
cannot respond to is nothing more than a futile exercise. With that
being said, in order to provide a sign of good faith upon their
request, we will be sending our initial Due Diligence Request List
to the Board in short order.
Let shareholders not be confused: Donerail is
one of the largest shareholders of the Company; has engaged with
the Company in good faith in an attempt to acquire it; has provided
robust and comprehensive details to the Board and its financial
advisor regarding our prospective acquisition financing; and has
attempted for months to review confirmatory diligence to confirm
our price and finalize our bid. But the most salient fact remains:
the Board has rejected a bona fide $36.50 offer with the Company’s
stock price trading meaningfully lower. We do not understand the
Board’s actions, and shareholders have a right to be concerned.
Turtle Beach is a unique, strategic and
defensive brand with highly durable and highly visible cash flows.
Notwithstanding the disappointing quality of engagement heretofore
with the Board, we are hopeful that the Board recognizes the
Company needs to be sold immediately and that we stand willing to
engage as a prospective buyer.
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
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