Another Instructure Investor Opposes Thoma Bravo Deal

(Bloomberg) -- Another shareholder in Instructure Inc. has come out against its $2 billion takeover by Thoma Bravo, arguing the education software company is selling for cheap after running a flawed sale process.

Thoma Bravo’s agreement last month to buy Instructure for $47.60 per share sharply undervalues the company, Lateef Investment Management said in a letter to the board. Instructure is worth at least $60 per share -- and that’s before factoring in the value of deductions it can make to lower its taxable income, Lateef said in the letter, a copy of which was obtained by Bloomberg.

Instructure had about $765 million in so-called net operating loss carry forwards at Sept. 30, according to regulatory filings.

“We are not supportive of this deal and will vote against it,” Lateef Chief Investment Officer Quoc Tran said in the letter dated Dec. 4, the same day the deal was announced. “We encourage you to seek a better outcome than this take under from Thoma Bravo.” Lateef owns a roughly 1.5% stake in Instructure.

Lateef is one of at least four investors to come out against the transaction. Praesidium Investment Management Co., Oberndorf Enterprises and Rivulet Capital said they plan to vote against the deal at a meeting slated for Feb. 13.

A representative for Instructure wasn’t immediately available for comment. A representative for Thoma Bravo declined to comment.

Tran said he has had several concerns about the company’s governance over the years, and now questions why Instructure Chief Executive Officer Dan Goldsmith would remain with the company under the terms of the deal.

“Goldsmith staying on as CEO seems like a conflict of interest where he’s putting his own interests ahead of shareholders,” Tran said. “We don’t think Dan has done a good job with Bridge and this deal rewards him rather than hold him accountable.” Bridge is Instructure’s employee development software division.

Thoma Bravo’s offer values Instructure at a 10% discount to its last closing price before the deal was announced but an 18% premium to its average price over the prior three months.

Instructure’s shares were little changed at $48.12 apiece at 1:55 p.m. in New York trading Monday, giving the Salt Lake City-based company a market value of about $1.8 billion.

The company subsequently said its review process lasted 11 months with 19 parties signing non-disclosure agreements. The deal has a so-called go-shop period in which it can solicit other offers until this Wednesday.

Tran also expressed concerns about the sales process, noting that it was concluded 20 days after the company said it was exploring strategic alternatives.

He said he recognized that the press release dates don’t necessarily reflect the time the board and management put into the process.

“However, with the timing being under a month, I’m suspicious that management had favored Thoma Bravo all along, meaning that there was not a fair consideration of alternatives that could potentially be better for shareholders,” he said.

©2020 Bloomberg L.P.

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