In contrast to the LBO of data encryption vendor SafeNet a year-and-a-half ago, Vector Capital’s latest effort to take an IT security company private has been a more contentious process. After a series of public and private exchanges with Aladdin Knowledge Systems, Vector, through a subsidiary, called for a special meeting of shareholders to vote on the buyout firm’s plan to replace three of the company’s five board members. On Thursday, Aladdin agreed to the vote, setting October 23 as the date for the proxy showdown.
Vector is currently Aladdin’s largest shareholder, with a 14% stake (Aladdin insiders hold about 20%). The buyout firm began picking up shares earlier this summer at about $9 per share. It quickly piled up a 9% stake, and has since bumped it up to 14%. Along the way, we understand it made numerous private offers to buy the company and then disclosed in late August a public offer to buy the rest of the company at $13 per share. While Vector’s offer represented a 40-50% premium from when the firm started buying, Aladdin shares have ticked above the offer, changing hands at $13.80 in mid-Friday trading.
The unsolicited bid from Vector didn’t go over well with Aladdin. The company has dismissed it as ‘opportunistic’ but hasn’t said much more than that. Behind the scenes, Aladdin has carped that the only party that stands to gain from Vector’s bid is Vector, either by picking up Aladdin on the cheap or disrupting Aladdin’s business enough that it would benefit rival SafeNet, a Vector portfolio company. Investors, who have seen Aladdin shares shed as much as two-thirds of their value since last October, may not be so dismissive of the floor price set by Vector. (They are also mindful of what might happen to their holdings if Vector stymied in its efforts to ink a deal gets rid of its 14% stake of Aladdin. Look out below.)
In the month remaining before the vote, we suspect the jabbing and jockeying between Aladdin and Vector will increase. Israel-based Aladdin recently retained the PR firm Joele Frank, Wilkinson Brimmer Katcher, which is basically the go-to shop for companies caught in a bear hug, to get its side of the story out. But the company, along with all of its flaks, faces an experienced bidder. Not only has Vector pushed through unsolicited bids in the past, one of the partners working on the firm’s efforts, David Fishman, has worked on the other side of the table. Before joining Vector, Fishman was a banker at Goldman Sachs, where he worked on a number of defensive deals, including PeopleSoft’s attempted stiff-arm of Oracle. We’re pretty confident that no one involved in this transaction wants to repeat the nastiness of Oracle’s hostile run at PeopleSoft.