⚖️ For Fairness Sake ⚖️ Stamps.com acquired by Thoma Bravo for ~$6.6 billion
A quick look at Stamps.com's fairness opinion.
Stamps.com acquired by Thoma Bravo for ~$6.6 billion equity value.
This is a little more preliminary look since the PREM14A with the fairness was just filed and we are missing some data that may get filled in. I will likely update this post as we get more data.
Stamps.com / Thoma Bravo deal overview
July 9, 2021 – Stamps.com (NASDAQ: STMP), a leading provider of e-commerce shipping solutions, today announced that it has entered into a definitive agreement to be acquired by Thoma Bravo, a leading software investment firm, in an all-cash transaction that values Stamps.com at approximately $6.6 billion.
Under the terms of the agreement, Stamps.com stockholders will receive $330.00 per share in cash representing a premium of 67 percent over the Company’s closing share price on July 8, 2021, the last full trading day prior to the transaction announcement. The premium is 71 percent over the Company’s three-month volume-weighted average closing share price through July 8, 2021.
Transaction Details
The agreement includes a 40-day “go-shop” period expiring August 18, 2021 which allows the Board and its advisors to actively initiate, solicit and consider alternative acquisition proposals from third parties. The Board will have the right to terminate the merger agreement to enter into a superior proposal subject to the terms and conditions of the merger agreement.
Termination fee of either (1) $99,500,000 if the Merger Agreement is terminated before the No Shop Period Start Date with respect to an Excluded Party, or (2) $199,000,000, in the case of any other such termination
Reverse Termination fee of $365,000,000
The transaction is expected to close in the third quarter of 2021, subject to customary closing conditions, including approval by Stamps.com stockholders and receipt of regulatory approvals.
Advisors
J.P. Morgan Securities LLC is acting as exclusive financial advisor to Stamps.com and Proskauer Rose LLP is acting as its legal counsel.
Debt financing for the transaction is being provided by Blackstone Credit, credit funds managed by Ares Management Corporation, PSP Investments Credit II USA LLC and Thoma Bravo Credit. Kirkland & Ellis LLP is serving as legal advisor for Thoma Bravo.
Background of the merger
TL;DR: Thoma Bravo made overtures to acquire Stamps.com in 2017 and 2019, that were rebuffed at the time. In early March 2021, Sponsor A asked for an introduction to the CEO and in mid-April made an offer of $260 to $270 in cash, which represented a 25% to 30% premium at the time. STMP decided to run a targeted auction and only reached out to 2 other parties, including Thoma Bravo. Ultimately through ~2 rounds of bidding, STMP was able to raise the offers from ~$260 to $320 to $330, particularly after Sponsor A made a last ditch effort to increase its bid after final bids were already submitted, which Thoma Bravo decided to match. No parties made an offer during the 40 day “go-shop” period.
Offer timeline
The wringer
Stamps.com filed PREM14A on August 19, 2021 that contained JPM’s fairness opinion. JPM delivered an oral and written opinion to the BoD on June 8, 2021. The initial submission is missing a some financial data need to recreate the analysis, we will see if Investors sue to get more disclosure.
Update: In response to shareholder litigation an updated DEF14A was filed on September 22, 2021 with some additional disclosure.
Stamps.com has agreed to pay J.P. Morgan an aggregate fee of approximately $48 million, $4 million of which became payable to J.P. Morgan at the time J.P. Morgan delivered its opinion and the remainder of which is contingent and payable upon the consummation of the Merger
It is fair to JPM. This works out to ~0.8% of the ~$6.3 billion enterprise value, which would probably be at higher end of M&A sell-side fee tables.
For its fee, JPM goes with the standard valuation methods and adds two others for observation only.
Trading comparables
Transaction comparables
DCF
52 Week trading range
Research Analyst price targets
A few caveats before we begin diving into the numbers. I am not going to be able tie out all the share price ranges due to several factors:
Financials projections are rounded to the ones
Quarterly projections not provided
A full option schedule was not provided in any filings
Again, the old saying still applies, “you get what you pay for” and this is free. That said, we are in the ballpark for all analysis, so let’s dive in.
Valuation Summary
Is it Fair?
As my dry wall installer used to say, only God and the Delaware Courts can decide that.
Ran a limited sale process with 2 parties and a strategic that indicated it might only engage in a “go-shop” period
$330 offer is above the majority of the valuation ranges JPM choose to use, including the 52 week high, but was below the high end of Research Analyst estimates
67% over the Company’s closing share price on July 8, 2021, the last full trading day prior to the transaction announcement, is very healthy
No other offered in the “go-shop” period
Let me know what you think about the quick read version in the comments below.
Management projected financials
(1) Represents actual results for the first quarter and projections for the balance of the year.
(2) Adjusted EBITDA represents earnings before interest and other expense, net, interest and other income, net, income tax expense or benefit, depreciation and amortization and (a) excludes certain non-cash items, including stock-based compensation expense and contingent consideration charges and (b) excludes certain expenses and gains such as acquisition related expenses, litigation settlement expenses, executive consulting expenses, and insurance proceeds.
(3) EBIT represents earnings before interest and other expense, net, interest and other income, net, income tax expense or benefits, and subject to the exclusions in (a) and (b) of footnote (2).
(4) EBIAT represents earnings before interest and other expense, net, interest and other income, net, after income tax expense or benefits, and subject to the exclusions in (a) and (b) of footnote (2).
(5) Free cash flow represents EBIAT plus depreciation and amortization, minus capital expenditures, minus change in net working capital, minus stock-based compensation (which is treated as if it were a cash expense for this purpose) and, in 2021, minus estimated after-tax expenses relating to settlements of litigations, and subject to the exclusions in (a) (other than stock-based compensation) and (b) of footnote (2).
Summary valuation
Discounted Cash Flow Analysis
J.P. Morgan calculated the unlevered free cash flows that Stamps.com is expected to generate from Q2 2021 to 2026 based upon financial projections prepared by the management of Stamps.com through the years ended 2026. J.P. Morgan also calculated a range of terminal asset values of Stamps.com at the end of the six-year period ending in 2026 by applying a perpetual growth rate ranging from 2.5% to 3.5% of the unlevered free cash flow of Stamps.com during the terminal year. The unlevered free cash flows and the range of terminal asset values were then discounted to present values using a range of discount rates from 9% to 10%, which were chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of Stamps.com. The present value of the unlevered free cash flows and the range of terminal asset values were then adjusted by adding Stamps.com’s net cash balance of approximately $550 million as of June 30, 2021. Based on the results of this analysis, J.P. Morgan arrived at a range of equity values of between $225.00 and $287.25 per share of the common stock on a stand-alone basis (i.e., without synergies).0
Selected Companies Analysis
Using publicly available information, J.P. Morgan compared selected financial data of Stamps.com with similar data for selected publicly traded companies engaged in businesses which J.P. Morgan judged to be analogous to Stamps.com. The companies selected by J.P. Morgan were:
eBay Inc. (“eBay”)
GoDaddy Inc. (“GoDaddy”)
LendingTree, Inc. (“LendingTree”)
Moneysupermarket.com
Shutterstock
Yelp
These companies were selected, among other reasons, because they are publicly traded companies with operations and businesses that, for purposes of J.P. Morgan’s analyses, may be considered sufficiently similar to those of Stamps.com based on business sector participation, operational characteristics and financial metrics.
For each of the selected companies, J.P. Morgan calculated the multiple of firm value to estimated adjusted EBITDA for the 2022 calendar year (which we refer to as “CY2022E FV / Adj. EBITDA”). The multiples were based on the selected companies’ closing stock prices on July 7, 2021 and publicly available Wall Street analysts’ consensus estimates. The following table represents the results of this analysis:
Based on the results of this analysis and other factors J.P. Morgan considered appropriate, J.P. Morgan selected a multiple reference range of 9.0x to 19.0x for CY2022E FV / Adj. EBITDA, and applied this reference range to a CY2022E Adj. EBITDA for Stamps.com, as provided by Company management in its management projections. This resulted in an implied equity value range of $164.25 to $310.50 per share (in each case, rounded to the nearest $0.25) for Stamps.com, compared to (i) the closing price of the common stock on July 7, 2017 of $197.01 per share (which we refer to as the “Unaffected Price”), which was the last trading day prior to the public announcement of the Merger, and (ii) the merger consideration of $330.00 per share.
Selected Transactions Analysis
Using publicly available information, J.P. Morgan examined selected transactions involving companies that engaged in businesses which J.P. Morgan judged to be reasonably analogous to the business of Stamps.com or aspects thereof. For each of the selected transactions, J.P. Morgan calculated the ratio of the target company’s firm value to the public estimates of adjusted EBITDA for the 12-month period following the announcement of the transaction (which we refer to as “FV / NTM Adj. EBITDA”). Specifically, J.P. Morgan reviewed the following transactions:
Based on the results of this analysis and other factors J.P. Morgan considered appropriate, J.P. Morgan selected a multiple reference range of 11.0x to 21.0x for FV / NTM Adj. EBITDA, and applied this reference range to the NTM Adj. EBITDA for Stamps.com, as provided by Stamps.com management in its management projections. This resulted in an implied equity value range of $178.25 to $310.00 per share (in each case, rounded to the nearest $0.25) for Stamps.com, compared to (i) the Unaffected Price and (ii) the merger consideration of $330.00 per share.
52-Week Historical Trading Range.
For reference only and not as a component of its fairness analyses, J.P. Morgan reviewed the trading range for Stamps.com common stock for the 52-week period ended July 7, 2021. J.P. Morgan noted that the low and high closing share prices during this period were $159.22 and $325.13 per share of Stamps.com common stock, respectively.
Analyst Price Targets for Stamps.com.
For reference only and not as a component of its fairness analyses, J.P. Morgan reviewed (i) certain publicly available equity research analyst share price targets for Stamps.com common stock, and noted that the range of such price targets, rounded to the nearest $0.25, was $245.00 per share of Stamps.com common stock to $378.00 per share of Stamps.com common stock, and (ii) certain publicly available equity research analyst share price targets for Stamps.com common stock discounted by twelve months at a cost of equity of 10%, and noted that the range of discounted values for such price targets, rounded to the nearest $0.25, was $223.00 per share of Stamps.com common stock to $344.00 per share of Stamps.com common stock, in each case, as compared to the merger consideration of $330.00 per share in cash and the closing price per share of Stamps.com common stock as of July 7, 2021 of $197.01.
Background of the Mergers
In May 2017 Thoma Bravo contacted Mr. Ken McBride, CEO of Stamps.com, to express an interest in pursuing a transaction in which Thoma Bravo would acquire Stamps.com indicating it would be willing to pay a price of $135.00 per share. The closing market price per share of Stamps.com common stock during the month of May 2017 ranged from approximately $103 to $141. The Board of Directors determined not to proceed with any discussion or confidential information sharing with Thoma Bravo at that time.
In May 2019 Thoma Bravo contacted Mr. McBride to express an interest in pursuing a transaction in which Thoma Bravo would acquire Stamps.com indicating it would be willing to pay a price of $50.00 per share. The closing market price per share of Stamps.com common stock during the month of May 2019 ranged from approximately $34 to $87. The Board of Directors determined not to proceed with any discussion or confidential information sharing with Thoma Bravo at that time.
In August 2019, in connection with commercial discussions with an industry participant, Industry Participant A, discussed the possibility of making an equity investment in Stamps.com. These discussions did not progress beyond preliminary or exploratory discussions and Industry Participant A indicated that it was not interested in further pursuing the discussions.
On March 2, 2021, Sponsor A contacted David Habiger, a director of Stamps.com, who had a prior relationship with a portfolio company of Sponsor A that concluded several years earlier, asking for an introduction to Mr. McBride. Mr. Habiger did not engage in any substantive discussions with Sponsor A and thereafter made an introduction of Sponsor A to Mr. McBride.
On March 9, 2021 Sponsor A contacted Mr. McBride. The discussion addressed investor-related matters and did not discuss any potential acquisition
On April 14, 2021, Sponsor A sent Mr. McBride a preliminary, non-binding written indication of interest to acquire Stamps.com for a per share price range of $260 to $270 in cash, which represented a 25% to 30% premium to Stamps.com’s closing price as of April 13, 2021 and a 30% to 35% premium to Stamps.com’s 60-day volume weighted average trading price at that time.
On April 21, 2021, The Board of Directors discussed overall strategy to maximize stockholder value, including engaging in a sales process relative to other opportunities available to Stamps.com, the manner of conducting, and timing of, a sale process, valuation, business risks and other parties that could potentially be interested in acquiring Stamps.com. After discussion the Board of Directors instructed Mr. McBride to notify Sponsor A that it was rejecting the proposal at the proposed price range and to separately communicate to Sponsor A that the Board of Directors could potentially be open to considering a proposal at a higher valuation.
Between April 22, 2021 and April 29, 2021, Stamps.com senior management approached J.P. Morgan concerning the engagement given Stamps.com’s long-term relationship with J.P. Morgan, J.P. Morgan’s strength as a financial advisor and the historical and ongoing discussions Stamps.com senior management had with J.P. Morgan on a variety of topics including capital raising and mergers and acquisition transactions.
During the period between April 22, 2021 and April 29, 2021, J.P. Morgan provided a proposal for its engagement as a financial advisor and provided a draft of an engagement letter, which Stamps.com senior management and Proskauer negotiated with J.P. Morgan. J.P. Morgan also provided Stamps.com with a presentation, which, among other things addressed preliminary valuation perspectives, process alternatives for pursuing a transaction (including use of a post-signing “go-shop”) and a review of potential buyers, including highlighting Sponsor A, Thoma Bravo, and Industry Participant A as the most logical buyers, based largely upon the past interest such parties had expressed in a potential transaction with Stamps.com and in the case of Sponsor A and Thoma Bravo, the size and type of transactions such sponsors have historically pursued.
On April 29, 2021, At this meeting Mr. Habiger expressly disclosed to the Board of Directors his conflict of interest involving Thoma Bravo, including that he was President of J.D. Power, which was a portfolio company of Thoma Bravo and that he had investments in several funds managed by Thoma Bravo. Mr. Habiger also expressly disclosed to the Board of Directors his prior relationship with a company owned by Sponsor A, which had concluded several years earlier. Having been informed regarding Mr. Habiger’s relationship to Thoma Bravo and his prior relationship with a company owned by Sponsor A and having considered the potential conflicts of interest implications, the Board of Directors determined to include Mr. Habiger in the ensuing meetings of the Board of Directors, with exceptions noted. The Board then considered that Sponsor A and Thoma Bravo were among the best suited financial sponsors to make strong proposals. The Board noted that Thoma Bravo had shown interest in Stamps.com based on its proposals in 2017 and 2019. The Board also considered, after discussion with J.P. Morgan, whether the inclusion of two financial sponsors of the caliber, financial resources and relevant industry focus as Thoma Bravo and Sponsor A would be sufficient to test the market for financial sponsor interest and whether the potential benefits of conducting a broader marketing process was outweighed by the risks of distraction of management, the potential for leaks and disruption of existing commercial relationships. Stamps.com senior management also informed the Board of Directors that the J.P. Morgan presentation noted different process alternatives that Stamps.com could pursue, including (i) moving forward with current parties with a “go-shop” arrangement, (ii) targeting outreach efforts to a limited number of additional potential buyers and/or (iii) conducting a broad confidential outreach to potential buyers. As the Board of Directors considered the valuation in the initial proposal from Sponsor A to be inadequate, the Board of Directors discussed using J.P. Morgan’s assistance in determining whether materially higher valuations might be obtainable. After a discussion, the Board of Directors authorized management, with advice from and in conjunction with J.P. Morgan, to engage in outreach to selected buyers by enabling due diligence reviews by Sponsor A pursuant to a non-disclosure agreement and initiating outreach to Thoma Bravo and, potentially, Industry Participant A, to determine whether they would be interested in making any strategic proposals and their willingness to agree to the use of a “go-shop” process.
On April 29, 2021, following the meeting of the Board of Directors, Stamps.com and Sponsor A entered into a non-disclosure agreement.
On May 16 and 17, 2021, Mr. McBride contacted Thoma Bravo and told such representatives that Stamps.com would be willing to consider an indication of interest from Thoma Bravo if Thoma Bravo was willing to submit one.
On May 18, 2021, J.P. Morgan provided Thoma Bravo with a non-disclosure agreement, which was executed on May 20, 2021.
On June 2, 2021, J.P. Morgan informed Sponsor A and Thoma Bravo that, having substantially concluded their respective due diligence processes, they should each be prepared to provide an updated proposal (in Sponsor A’s case) or an initial proposal (in Thoma Bravo’s case), in each case, regarding a potential acquisition of Stamps.com. J.P. Morgan specifically noted, at the direction of Stamps.com, that since the Board of Directors would be deciding whether or not to proceed with either party regarding a potential strategic transaction, valuation was the single most important aspect of any revised or new proposal.
On June 8, 2021 and June 9, 2021, Mr. McBride and J.P. Morgan contacted Industry Participant A to inform Industry Participant A of the existence of the outreach to selected buyers. A representative of Industry Participant A stated that it might consider an acquisition transaction through participation in the “go-shop” process but was unlikely to make any proposal at the current time.
On June 8, 2021, Sponsor A provided an updated nonbinding indication of interest to acquire Stamps.com for $260 per share, which was at the lowest end of the range that Sponsor A had proposed in its initial proposal on April 14, 2021. The Stamps.com closing price on the Nasdaq on June 7, 2021 was $191.96, and thus Sponsor A’s proposal reflected an approximately 36% premium to the price per share of Stamps.com common stock at such time, which was an increase from the premium in its initial proposal. The Sponsor A indication of interest proposed to fund the potential transaction with a majority equity contribution from Sponsor A’s funds and a limited set of certain of its limited partners, as well as borrowings from lenders. Sponsor A’s indication of interest did not offer a “go-shop,” did not request exclusivity and noted several additional confirmatory due diligence items it needed.
On June 8, 2021, Thoma Bravo provided a non-binding indication of interest to acquire Stamps.com for $270 per share, which reflected an approximately 41% premium to the closing price per share of Stamps.com common stock on June 7, 2021. The Thoma Bravo indication of interest proposed to fund the potential transaction with an equity contribution from Thoma Bravo’s funds (without the need to obtain equity from any co-investors), as well as borrowings from lenders. The Thoma Bravo indication of interest offered a 30 day “go-shop” and requested three weeks of exclusivity.
On June 9, 2021, J.P. Morgan provided the Board of Directors with its preliminary valuation analysis of Stamps.com and its analysis of the financial terms of each of the Sponsor A and Thoma Bravo proposals. J.P. Morgan also summarized its work since its engagement, including discussions with Sponsor A, Thoma Bravo, Industry Participant A and facilitating due diligence. J.P. Morgan also provided the Board of Directors information about potential additional financial sponsors and strategic/industry bidders who could be invited to participate in the market outreach process. The presentation also covered various scenarios for additional outreach, and their respective advantages and disadvantages, including proceeding with the market outreach process with only Sponsor A and Thoma Bravo, broadening the market outreach process on a targeted basis or a further broadened market outreach process to a wide set of potential counterparties. J.P. Morgan noted various advantages and disadvantages with each of these approaches, including the risk of information leaks, the perception of being actively “shopped”, the impact on Stamps.com’s management’s attention and the risk of adversely impacting the interest and momentum with the current parties, as well as the ability to utilize a “go-shop” construct to solicit and actively engage with additional potential bidders after execution of a merger agreement.
Given that the indications of interest from both Sponsor A and Thoma Bravo were nearly the same from a price perspective as Sponsor A’s initial proposal, the Board of Directors discussed with J.P. Morgan an approach to obtain materially higher proposals from both parties by potentially offering a limited period of exclusivity in a single round of bidding to the party that offered the highest and best valuation that was materially higher than the prior proposals. The Board of Directors then authorized J.P. Morgan to solicit the highest possible and best offer from Sponsor A and Thoma Bravo in a single round of bidding, in exchange for a limited period of exclusivity, instructing them to provide updated indications of interest by the morning of June 10, 2021, including with a price per share of at least $280 (which would reflect a price per share floor of an approximately 46% premium to the closing price per share of Stamps.com common stock on June 7, 2021) and to confirm their willingness to agree to a “go-shop” process following execution of a definitive agreement with respect to a strategic transaction with Stamps.com.
On June 10, 2021, Sponsor A provided an updated nonbinding indication of interest of $311 per share (which reflected an approximately 62% premium to the closing price per share of Stamps.com common stock on June 7, 2021), a 45-day “go-shop” period with a 1.5% break-up fee applicable during the “go-shop” period and a 3% fee applicable thereafter. In addition, Sponsor A required 28 days of exclusivity. Thoma Bravo provided an updated nonbinding indication of interest of $320 per share (which reflected an approximately 67% premium to the closing price per share of Stamps.com common stock on June 7, 2021) and a 40-day “go-shop” period and with similar break-up fee and exclusivity terms as Sponsor A’s $311 indication. Given the material increase in valuation indicated by both bidders and taking into account the preliminary valuation analysis provided by J.P. Morgan, and given that Thoma Bravo’s bid was $9.00 per share higher than Sponsor A’s bid, the Board of Directors determined that it was in the best interests of stockholders to grant exclusivity to Thoma Bravo. Although J.P. Morgan, at the instruction of the Board of Directors, had informed both bidders that each should make only a single bid, in order to obtain the highest possible price in exchange for exclusivity (and without any commitment by the Board of Directors to agree to any eventual transaction), before Stamps.com entered into exclusivity with Thoma Bravo, Sponsor A made a new unsolicited proposal of $330 per share (which reflected an approximately 72% premium to the closing price per share of Stamps.com common stock on June 7, 2021). Although the Board of Directors believed that Thoma Bravo had been the high bidder based on the parameters established for the bidding process, and that there was a risk of Thoma Bravo abandoning the process if Thoma Bravo believed that the Board of Directors was changing the process in response to a second bid by Sponsor A that was submitted after the single round of bidding, the Board of Directors, nevertheless, determined that it would be in the best interests of stockholders to treat the Sponsor A unsolicited bid as the new high bid, and accordingly the Board of Directors was prepared to enter exclusivity with Sponsor A unless Thoma Bravo matched or exceeded the price per share offered in Sponsor A’s second bid. In response, Thoma Bravo increased its proposal to $330 per share, without changing the other non-financial terms in its prior proposal. Given the fact that Thoma Bravo had initially been the high bidder, the high premium to Stamps.com’s current market price implied by the proposed price, and the fact that Thoma Bravo’s bid did not require equity co-investors as Sponsor A’s indication of interest had specified, the Board of Directors decided it was in the best interests of stockholders to grant exclusivity to Thoma Bravo based on the updated $330 price per share proposal. This price represented a premium of approximately 72% to Stamps.com’s closing price and 90-day volume weighted average price as of June 7, 2021. The exclusivity agreement with Thoma Bravo was entered into later in the day on June 10, 2021.
On June 24, 2021, Proskauer provided Kirkland an initial draft merger agreement. The draft merger agreement contemplated, among other things, (i) a 40-day “go-shop” period following the execution of the definitive agreement for Stamps.com to solicit and consider superior proposals with a related 1.5% termination fee for parties that constituted “Excluded Part[ies]” as defined in the merger agreement; (ii) a 3% termination fee for a superior proposal accepted after the “go-shop” period or for parties that did not constitute “Excluded Part[ies]” as defined in the merger agreement; (iii) a 6% termination fee payable by Thoma Bravo if it failed to consummate the transactions under certain circumstances (a “reverse termination fee”); (iv) a best efforts covenant from both parties to secure regulatory approval of the transaction with a “hell or high water” required divestiture provision; (v) acceleration of all unvested stock options and restricted stock units; and (vi) other customary terms
On July 2, 2021, Kirkland sent Proskauer a revised draft of the Stamps.com draft merger agreement. The revised draft merger agreement contained certain material revisions compared to the Stamps.com initial draft merger agreement, including, without limitation, (i) a requirement that all directors and officers sign voting agreements to vote their shares of Stamps.com common stock in favor of the merger concurrently with the execution of the merger agreement; (ii) a definition of “Excluded Party” that would have the effect that any offer during the “go-shop” period by a party that had previously made a written proposal (without any temporal limitation) to acquire Stamps.com prior to the signing of the merger agreement, such as Sponsor A, would (if the merger agreement were terminated to pursue such offer) trigger a 3% termination fee rather than the 1.5% termination fee that would be applicable to other parties; (iii) the removal of the “hell or high water” required divestiture provision; (iv) no acceleration of any unvested stock options or restricted stock units; (v) a requirement that Stamps.com reimburse up to $6 million of Thoma Bravo expenses incurred in connection with the proposed transaction if the stockholders of Stamps.com did not approve the merger as well as in other specified cases; and (vi) a 5% “reverse termination fee” if Thoma Bravo was unable to close the transaction due to not having the requisite debt financing.
On or about July 3, 2021, Kirkland communicated in discussions with Proskauer that the modifications to the “Excluded Party” definition incorporated in Thoma Bravo’s July 1, 2021 draft of the merger agreement were critical to Thoma Bravo’s willingness to move forward with the transaction.
On July 6, 2021, Representatives of Proskauer summarized the legal and fiduciary issues presented by the changes to the merger agreement requested by Thoma Bravo and Kirkland, including Thoma Bravo and Kirkland’s continued resistance against a “hell or high water” antitrust covenant. Given the known lack of competitive business overlap between Stamps.com and Thoma Bravo’s portfolio companies, the “hell or high water” demand was deemed to be acceptable under the circumstances, and therefore the discussion focused on the definition of “Excluded Party.” The Board (with Mr. Habiger still being recused) engaged in an active discussion regarding the original purpose of the “go-shop” (namely to facilitate bids by parties who were not involved in pre-signing market outreach), the fact that Sponsor A had already been given several clear opportunities to be the higher bidder in the process of granting exclusivity, and in fact had caused Thoma Bravo to further increase its bid even after Thoma Bravo had been determined to be the highest and best bidder based on the single round of bidding of the original market outreach process, the fact that, based on the prior preliminary valuation analysis provided by J.P. Morgan, Thoma Bravo’s bid appeared to fully value Stamps.com at the highest end of all credible ranges, the fact that Thoma Bravo had made it clear that the “Excluded Party” provision proposed in its markup (and its implications on Sponsor A) was fundamental to its willingness to proceed with a transaction and the fact that Sponsor A had not made any outreach to Stamps.com since June 10, 2021 and that there was no assurance whatsoever that Sponsor A would be interested in making a “back up” offer should Thoma Bravo follow through on its credible threats of abandoning the process were this point not conceded by Stamps.com. Among other things, the Board was advised that Thoma Bravo had taken the position that unvested options and RSU Awards should not accelerate, that Thoma Bravo’s position was inconsistent with its original proposal which showed the capitalization of Stamps.com with all options and RSU Awards (whether vested or unvested) being exercised, and that Thoma Bravo was no longer raising acceleration of options or RSU Awards as an issue. In addition, representatives of Proskauer noted that there were various open points in the draft merger agreement where the Stamps.com draft provided the Board of Directors greater flexibility than the Thoma Bravo revised draft, and that any concession made regarding the definition of “Excluded Party” could be paired with concessions by Thoma Bravo to enhance the Board of Director’s flexibility in any “go-shop” process and in the event of unsolicited bids. Based on these factors, the Board of Directors (again, with Mr. Habiger still recused) determined that continuing to negotiate the merger agreement with Thoma Bravo was in the best interests of stockholders and that the concession on the “Excluded Party” definition was necessary to avoid the likely loss of a valuable opportunity for stockholders, while also providing an opportunity to negotiate added changes to the merger agreement that would enhance the overall flexibility of the Board of Directors to utilize the “go-shop” process and reduce risk to Stamps.com. In addition, the Board of Directors (with Mr. Habiger participating) also recognized that, although there had not been any discussions between Thoma Bravo and management concerning continued employment of management and it had not authorized any discussions between Thoma Bravo and management regarding management compensation, Thoma Bravo might want to retain management in the event that a merger agreement was signed. The Board further recognized that in such event management would require independent counsel, and therefore authorized management to retain, as a corporate expense, independent counsel to represent it should management wish to negotiate with Thoma Bravo after a merger agreement was executed.
Later on July 6, 2021, Proskauer provided Kirkland a revised draft of the merger agreement which included the elements of the “Excluded Party” definition and the removal of the “hell or high water” antitrust clause which Thoma Bravo had indicated were threshold issues, but also made other changes to enhance the utility of the “go-shop” period. In addition, the parties negotiated a final “reverse termination fee” of 5.5% and resolved other remaining open points in the draft merger agreement and disclosure schedules.
Between July 2, 2021 and July 8, 2021, Proskauer and Kirkland negotiated the ancillary agreements to the draft merger agreement and the draft disclosure schedules. On July 7, 2021, representatives of Proskauer and Kirkland discussed the final open points in the merger agreement, and Thoma Bravo agreed to a further request that no director other than Ken McBride would be required to enter into a voting agreement
On July 8, 2021, after market close, J.P. Morgan provided J.P. Morgan’s financial analyses of the Thoma Bravo $330 per share proposal. J.P. Morgan then rendered its oral opinion to the Board of Directors, which was subsequently confirmed by delivery of its written opinion, dated July 8, 2021, that, as of such date, and based upon and subject to the factors and assumptions set forth in its opinion, the $330 per share merger consideration (as proposed in the Thoma Bravo $330 per share proposal) to be paid to the Stamps.com common stockholders in the proposed Merger was fair, from a financial point of view, to such stockholders. Mr. Habiger again reminded other members of the Board of Directors of his employment by J.D. Power, which is a Thoma Bravo portfolio company, and again recused himself from the meeting so that the Board of Directors could continue to discuss the Merger in an executive session. Following such discussion, Mr. Habiger rejoined the meeting and then the Board of Directors unanimously (i) determined that it was in the best interests of Stamps.com and its stockholders, and declared it advisable, to enter into the merger agreement and consummate the Merger upon the terms and subject to the conditions set forth in the merger agreement; (ii) approved the execution and delivery of the merger agreement by Stamps.com, the performance by Stamps.com of its covenants and other obligations under the merger agreement, and the consummation of the Merger upon the terms and conditions set forth in the merger agreement; and (iii) resolved to recommend that Stamps.com stockholders adopt the merger agreement and approve the Merger in accordance with the DGCL.
Later that evening, Stamps.com and Thoma Bravo executed the merger agreement and related agreements entered into in connection with the transactions contemplated by the merger agreement.
The following morning on July 9, 2021 before market open, Stamps.com issued a press release announcing the execution of the merger agreement.
Since the execution of the Merger Agreement, in connection with the “go-shop” period provided for in the Merger Agreement, which expired at 11:59 p.m. Pacific Time on August 17, 2021, at the direction of the Board of Directors, representatives of J.P. Morgan contacted and sought to engage in discussions with 35 parties regarding submitting an Acquisition Proposal, including Industry Participant A and Sponsor A with which Stamps.com had engaged prior to the execution of the Merger Agreement. 16 of the parties were financial parties and 19 of the parties were industry participants. In addition, J.P. Morgan received inquiries from two other potentially interested parties, one financial party and one industry participant, during the “go-shop” period. Stamps.com executed confidentiality agreements with three parties. None of the parties contacted or who made inquiries made an Acquisition Proposal.