Electronic dance music powerhouse SFX Entertainment may be changing its tune when it comes to a $5.25-a-share take private transaction offered by founder Robert Sillerman. The company said on Monday it is fielding indications of interest on the sale of specific business lines, however, an extended 'go-shop' on Sillerman's takeover bid, conducted by investment bank Moelis & Co., yielded no alternative acquisition proposals.
Now, it appears SFX's board and advisors are willing to consider a minority sale, JV, or asset disposal in favor of Sillerman's outright takeover, which valued the company at $774 million. SFX said on Monday, a special committee reviewing the sale had "received several indications of interest regarding the potential acquisition of various components of the Company's business. The committee and management are continuing to review these indications of interest."
SFX's statement about asset sales adds to confusion about the prospects of its buyout. No competing bidders to Sillerman's proposed take private emerged over the course of a 60-day 'go-shop' period, and the $5.25 a share tender still stands in force, even if eleventh hour alternatives are being toyed with.
"Unless an alternative transaction is proposed, reviewed and approved by the special committee, the previously announced merger transaction is expected to close during the fourth quarter of 2015, subject to the approval of SFX shareholders, as well as the satisfaction of certain customary closing conditions," the company said.
For investors, the move is yet another curve ball in what's been a tumultuous run for SFX on public stock markets.
The company IPO'ed in late 2013 at $13 a share, valuing it north of $1 billion. However, SFX repeatedly missed its earnings guidance, expected profits never materialized, and Wall Street analysts lost confidence in Sillerman's ability to handle the burdens of running a Nasdaq-listed company.
When Sillerman emerged with a take-private bid, it seemed SFX would become privately held in a matter of months. In May, Sillerman and SFX agreed to a deal where he would tender for all of the company's outstanding shares at $5.25 apiece, and set a 45-day 'go shop' expiring on July 10. Currently, Sillerman owns nearly 40% of SFX's outstanding shares.
However, the bid came with few of the financial commitments that normally are attached to large take-private transactions. No banks were disclosed as providing Sillerman financing on the cash tender, nor were any equity partners disclosed, leaving investors to wonder whether Sillerman would buy SFX with his cash and liquid assets, or if financing commitments were still being negotiated. About his bid, Sillerman said “this is not a leveraged buyout… I hope to use all-equity financing to fund the proposed going-private transaction,” without specifying any partners or sources of cash.
But those missing details increasingly appear to be major issues in Sillerman's tender offer, and a detriment to ordinary stockholders.
In June, investors were rattled by a stock offering SFX conducted far below Sillerman's offer price, in a equity financing the company said would help repay some of its outstanding debt. Why would a company subject to a credible tender dilute its stock to pay down debt? [The equity investors in the secondary offering were an odd breed: Electronic trader Wolverine Trading, and Virtual Point Holdings, an unknown firm operating from a P.O. Box outside of Atlanta]
Then, when the initial 45-day 'go-shop' on Sillerman's tender expired on July 10, further confusion was sowed when SFX's board agreed at the last minute to extend the 'go-shop' to July 24, even though it could point to no specific alternative bid.
Alarmingly, Forbes reported that wording in the 'go-shop' indicated financing sources were still being negotiated. One feature of the extended 'go-shop' also inexplicably included a change in the terms of the tender to allow Sillerman 15-days, instead of an initially agreed upon 10-days, to provide SFX with financing commitments on his buyout. Why such a change was necessary is unknown, however, it couldn't possibly be taken as a sign of confidence.
Last week, SFX announced a series of management changes, in addition to a partnership between Beatport, its streaming service, and Spotify. However, when the extended 'go-shop' period expired on Friday, SFX provided no update to investors.
Only at 11:05 a.m. on Monday morning, after an analyst downgrade that speculated about a potential price cut to the tender and repeated emails from Forbes, did SFX disclose to investors it hadn't found an alternative to Sillerman's offer.
A tease about indications of interest on specific business sales leaves investors with added concerns. Why would SFX consider selling a division, perhaps a concert brand or one of its coveted assets like Beatport, unless Sillerman's tender was in jeopardy?
Moelis & Co., advisor to SFX's board, declined to comment beyond public filings, as did the company, and Sillerman's advisor on the tender, Jefferies.
Investors can expect more uncertainty.
The 15-day time clock on Sillerman's ability to deliver financing on his tender has begun. If Sillerman's bid falls through, he is liable to pay a $31 million reverse termination fee, according to filings with the Securities and Exchange Commission.
That, however, would leave SFX to go at it alone on stock markets with almost no investor confidence. If summertime concert revenues don't come in as expected, it could also put the company in a crunch during winter months, when revenues take a seasonal dip.
SFX shares tumbled nearly 14% on Monday, closing at $3.32, almost 40% below Sillerman's tender price. In recent weeks, SFX's $295 million in five-year notes have traded from par to below 87-cents on the dollar, indicating bondholders' perception of distress.
As an EDM powerhouse with a limited operating history, SFX was one of the most unusual companies to IPO on the Nasdaq at a billion dollar valuation. The company's proposed take private at a fraction of its IPO price, however, is proving even move odd.
