Vista, Calif. - DEI Holdings discussed the reasons for its proposed sale and disclosed its recent financial status in a proxy statement.
The proxy statement (DEI Proxy Statement) also announced a June 20
shareholder vote on the agreement
by Charlesbank Capital
middle-market private equity investment firm, to acquire the parent of multiple
car electronics brands and home-speaker makers Polk Audio and Definitive
Technologies. The transaction is valued at $285 million, including the
assumption of $183 million in debt. The transaction will be financed through a
combination of $115 million in equity from Charlesbank and $205 million in a
senior secured credit facility, which consists of a $175 term loan and $30
million in revolving credit.
DEI's board decided to sell to Charlesbank because "the proposed merger transaction is more favorable to our shareholders than continuing our operations on an independent basis," the proxy said. Directors and executive officers own around 54.8 percent of outstanding common stock and stock options, with Trivest Funds, Coliseum Capital Management, and Massachusetts Mutual Life among the other major shareholders.
Shareholders will receive an estimated $3.79 to $3.80 in cash per share of common stock, representing a 142 percent premium over the closing price of the stock on May 12, the last full trading day before the sale was announced, and a 300 percent premium over the average closing price for the year before May 6.
The proxy statement also disclosed two shareholder suits were filed against the company and its suitor in a California Superior Court in San Diego to stop the merger and pay for the plaintiff's court cost of filing the suits. One suit also seeks compensatory damages, the proxy said.
"Both lawsuits are brought by purported shareholders, both individually and on behalf of a putative class of shareholders, alleging that the board breached its fiduciary duties in connection with the merger by purportedly failing to maximize shareholder value, that certain directors and/or officers would receive financial benefits not shared equally by all of our shareholders, and that we and Charlesbank aided and abetted the alleged breached."
DEI called the lawsuits without merit, and said it intends to "vigorously defend itself."
In disclosing its P&L statements, DEI said worldwide net sales grew 11.8 percent in calendar 2010 to $235.4 million compared to 2009's $210.5 million. Operating income rose 265 percent to $31.4 million from $8.6 million in 2010. And net income hit $10.5 million in 2010 compared to a 2009 net loss of $6.8 million.
In the first quarter of 2011, worldwide net sales rose 10 percent to $50.7 million, and net income hit $531,000 compared to a year-ago net loss of $892,000.
In the U.S., net sales rose 10.5 percent in calendar 2011 to $182.2 million, up from 2009's $165 million.
Other disclosures in the proxy statement were:
* DEI's board "engaged over a number of years in an ongoing review and discussion of strategic alternatives potentially available to our company to enhance shareholder value, including a sale of our company in its entirety."
* In 2009, DEI had "preliminary discussions with a competitor regarding a possible business combination or sale transaction."
* The company has been soliciting competing bids, as allowed under its agreement with Charlesbank, to find better acquisition proposals.
In doing so, DEI contacted 34 strategic parties and 57 financial parties, seven of which entered confidentiality agreements. On June 3, one of those entities advised DEI that it "intended to provide us with a superior proposal and financial arrangements in the near future." As of June 7, however, DEI hadn't received the proposal.
DEI has until 5 p.m. on June 16 to negotiate a superior proposal.
In other financial data, DEI had 2010 net assets of $193.4 million but liabilities of $257.3 million, including $185.4 million in senior notes.
In the future, DEI forecasts 2011 sales growth of 7.2 percent to $249.7 million, 5.8 percent growth in 2012, 6 percent in 2013, 6 percent in 2014, and 6.1 percent in 2015.
Gross profits in the 2011 through 2015 period for each respective year are forecast at $112.2 million, $119 million, $126.4 million, $134.3 million and $142.7 million.
In other matters, the proxy statement shows that president/CEO Jim Minarik and executive VP/chief financial officer Kevin Duffy own 521,003 and Trot 159,599 shares, respectively; chairman Trpy Templetoin owns 9.53 million shares; and director Earl Powell owns 9.5 million shares. Both men are also affiliated with shareholder Trivest.
DEI founder and U.S. Rep Darrell Issa owns 500,000 shares, and his Greene Properties corporation leases 200,000 square feet of office and distribution space to DEI for an annual rent of $2 million in 2010.
The proxy also shows that Minarik and Duffy have a gain share agreement entitling them to a payment of $4.725 million each when the company is sold. Some of that will be in Charlesbank stock.