Monday, August 24, 2009

Another Bankrate 13d letter blasts management (RATE)

AlphaNinja - I was excited last Thursday to see a shareholder fight back against management walking away with a company on the cheap.

Hugely upset shareholder Philippe Laffont provides more ammo to his argument that management and the board acted irresponsibly in approving the buyout. Maybe the best part is that Needham, the investment bank advising the board on the $28 per share deal, had a $38 price target last fall!

I'm including his entire letter here, emphasis and color shading done by me not him.

24 August, 2009
Mr. Thomas J. Evans
President & CEO
Bankrate, Inc.

Friday, in another acknowledgement that the management/ Apax proposal is a bad deal for existing shareholders, RiskMetrics Group (formerly known as ISS), a leading expert on corporate governance and mergers, issued a DO NOT TENDER report recommending that shareholders not tender into the current offer. Furthermore, I find it extremely troubling to read in the report that despite attempts on RiskMetrics’ side, you and the board refused to meet with them, a highly unusual move. The RiskMetrics report comes on the heels of another independent assessment that was critical of the deal and the process by which it was approved: Steven Davidoff’s August 19, 2009 “Deal Professor” column in The New York Times Dealbook1.

The RiskMetrics report focuses on many of the issues that we have raised with you:

•There does not appear to be any immediate driver for a sale, and given the share price discount to relatively recent trading prices, the timing of the sale appears to be inopportune for shareholders.

•The deal structure benefits the acquirer: Among other things, the breakup fee is higher than typical, the Company was not shopped aggressively, there is an expedited tender offer schedule and the shareholder approval requirement is below standard “best practice” for going private transactions involving insiders.

•The disinterested director committee did not take primary responsibility for negotiations, did not have separate counsel and declined the opportunity to speak to RiskMetrics about the process. (I was amazed to read that the disinterested directors approved the deal with the help of Needham in less then 5 days. Did anyone remind Needham that their equity analyst had published a note in December, in the depths of the financial crisis, with a target price of $39 per share? )

Tom, why are there so many staggering and unanswered questions? Why would you sell at the low? Why would you sell during a financial crisis? Why would you sell when Apax, your buyer, uses the weak excuse of not paying more for this deal because they cannot finance it? Why would you rush this deal through with high break up fees, matching rights, and a low shareholder approval requirement?

As I think about these questions, I think about all the ways in which management’s incentives differ from those of other shareholders and conclude this is the only reason you and Mr. Morse would support such a terrible deal. After all, Mr. Morse will get to cash out half his stake in the Company at $28.50 and still roll a large chunk of his after-tax profit in this deal. And most important, you and the rest of your management cohort have a chance to share in a whopping $120 million (or even larger) compensation pool. Not bad for someone whose 2008 total compensation from the Company was $685,000. In fact, the lower the price offered to the rest of us, the higher your chances of participating in the bonus pool - what an interesting and perverse effect!

Your statement to me that shareholders are "lucky" to get $28.50 per share after you missed a quarter is naive and self-serving. It is naive to think the stock market would "punish you and bring your stock price to $12 or less" (your own words) based on your second quarter results. Many companies have missed earnings before you. Bankrate’s long-term value is based not on one missed quarter but on the long-term strength of its franchise and prospects for the future. It is self-serving because you needed the excuse of the bad quarter to rationalize an under priced deal born of a shoddy process. We obviously question the simultaneous timing of both announcements and note that you never gave the market the chance to value your company on the basis of second quarter results alone. How practical!

Tom, you and your board have betrayed the existing shareholders while rolling your own equity into this new deal and negotiating a great pay package for yourself and your management team. Either you should have fought for a better price or you should have committed yourselves to continue to run Bankrate as a public company with a great chance of getting the stock back to the $40 range, 40% higher then your takeout price. In fact, your stock closed above $40 per share on 125 trading days in 2008. At $40 per share, your stock would still be valued at a 6x 2012 adjusted EBITDA based on your own June 5 projections.

RiskMetrics has come out against this deal. We continue to urge all shareholders NOT to tender their shares and to withdraw today any shares previously tendered.

/s/ Philippe Laffont

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