CompuCom's Coleman Could Get $5 Million Dollar Merger Payout
Coleman and three other top CompuCom executives inked new employment contracts one day before the May 28 acquisition of CompuCom. The 17 year old, $1.45 billion solution provider is in the process of being acquired by Platinum in an all-cash deal valued at $254 million.
Three class action shareholder lawsuits have been filed in the wake of the proposed acquisition by Platinum. The complaints, which seek an injunction to block the deal, allege that CompuCom directors breached fiduciary duties in connection with the merger agreement.
Under the proposal, which still must be approved by shareholders, CompuCom shareholders will receive $4.60 in cash for each of the company's outstanding shares. That amount was under the $4.84 closing price of CompuCom shares on May 27 when CompuCom's top executives inked their new contracts. CompuCom shares closed Monday at $4.49.
"We're disappointed," said Sean Corkery, an analyst at Charlotte Capital, an investment firm which is one of CompuCom's biggest shareholders. "This doesn't reflect the true value of the company."
Key to the deal is the support of Safeguard Scientifics, a technology holding company, which has a 58 percent voting interest in CompuCom and has agreed to vote its shares in favor of the deal.
The new contracts for Coleman and the other executives go into effect once the merger with Platinum, a diversified $5.5 billion privately held technology investment firm, is completed.
Coleman is slated to receive a $1.76 million dollar lump sum payment when the deal is done, according to the proxy. Furthermore, he is entitled to a $1.76 million "stay bonus" 90 days after the transaction is completed and a payment with respect to his vested and unvested options which are valued at $1.55 million.
Coleman is also due a lump sum payment at the closing of the merger equal to his "targeted management incentive compensation plan bonus prorated to the date of the closing of the merger transaction to be deducted from any full year bonus earned."
CompuCom Senior Vice President and Chief Financial Officer M. Lazane Smith, Senior Vice President-Services John McKenna, and Senior Vice President-Human Resources David A. Loeser also could receive payouts under the deal.
Smith could receive a lump sum payment, stay bonus and options vesting of $2.06 million, according to the proxy. McKenna, meanwhile, is potentially entitled to a lump sum payment, stay bonus and options vesting of $1.6 million, while Loeser is potentially due a lump sum payment, stay bonus and options vesting of $1.3 million, according to the proxy.
Coleman and Broadview International Managing Director Edward Males, who represented CompuCom, have both insisted the deal is fair for CompuCom shareholders. "Of course I think it's a good deal," said Coleman in a recent interview. "It's a rapidly consolidating industry. It's an opportunity for CompuCom to be acquired by an organization that views us as a platform company. It will give us the opportunity, I believe, to more rapidly transition to a services led business which I think will create opportunities for our associates. It will create a broader set of capabilities for our clients."
Broadview, which advised CompuCom on the fairness of the deal, is due to receive a transaction payment of $3.82 million if the deal is completed, according to the proxy filing. Males, who has brokered services deals for a decade, said the price that Platinum is paying is in line with other deals. CompuCom's product business was under margin pressure from companies such as Dell and Hewlett-Packard, he said. The services business was flat and at the lowest end of the services spectrum, he said.
Among the factors taken into account by Broadview were projections of CompuCom revenue growth of 1.3 percent compared to 2003 actual results with "product revenue estimated to be essentially flat with 2003 and service revenue increasing by 6.1 percent."
The public companies that Broadview considered in its financial analysis of the deal include Insight Enterprises, Pomeroy Computer Resources Inc., PC Connection, Systemax and GTSI Corp.
As part of a transaction premiums paid analysis, Broadview cited, among others the acquisition of AlphaNet Solutions by CIBER Inc.; Command Systems by ICICI Ltd; PrimeSource Corp. by Fuji Photo Film USA Inc.; Metro Information Services by Keane Inc.; Software Spectrum Inc. by Level 3 Communications Inc.; Technisource Inc. by Intellimark Holdings; Mainspring Inc. by IBM Corp.; Lante Corp. by SBI and Company; IMRglobal Corp. by CGI Group Inc. and BTG Inc. by Titan Corp
Since Coleman took the helm of CompuCom in late 1999, the solution provider has gone from a $2.71 billion company with 5,500 employees to a $1.45 billion company with 3,400 employees. At the same time, the company's services revenues have grown from $271.5 million in 2000 to $296 million in 2003.
Platinum's initial interest in acquiring CompuCom dates back two years, according to the proxy. In late July 2002, five potential buyers, including Platinum, showed interest in acquiring CompuCom for prices ranging from $4 to $5 per share, according to the proxy.
Furthermore, from July 2003 to November 2003, CompuCom engaged in discussions with a potential buyer in a deal that would have been a combination of stock and cash with a combined value in the range of $5.75 to $6.50 per CompuCom common share, according to the proxy. The deal, however, was scuttled after CompuCom announced quarterly financial results, the proxy said.
On May 27, just before the deal with Platinum was approved by the CompuCom board, the proxy said, "Broadview stated that it and Mr. Coleman had revisited the potential strategic and financial purchaser contacts that in the past had shown the most interest in a possible transaction and had found no interest in any transaction that would provide value to CompuCom's stockholders comparable to the Platinum proposal." Furthermore, it was noted at that meeting that "careful consideration" had also been given to the possibility of CompuCom repurchasing the shares of its stock owned by Safeguard as well as other share repurchase alternatives, but "it had been concluded that such a transaction would result in CompuCom having a level of indebtedness that would make it challenging for CompuCom to meet its strategic growth objectives."