Two shareholders opposed to an acquisition of Workflow Management by Perseus and The Renaissance Group are working to keep Workflow public by finding lenders for a refinancing that the company and its adviser Jefferies & Co. are against. On two separate occasions last week Bank of America and La Salle Business Credit rescinded their separate offers to refinance Workflow's bank debt. Late last week Ableco Finance, a lending company formed by Cerberus Capital Management stepped into the breach.
Workflow announced that it is selling itself to the private equity firms after considering alternatives to address upcoming credit facility maturities (LMW, 2/16). "I don't think anyone ever said that the debt could not be refinanced. The company's board evaluated the alternatives and came to the conclusion that the sale was in the best interest of the shareholders," said Greg Feinstein, head of mergers and acquisitions with Jefferies.
But the sale is unacceptable to the investors who claim the debt should be refinanced instead. "The company has refused to go and pursue a refinancing, so we have gone out on our own and found lenders interested in proposing a refinancing," said James Chadwick, a managing member of Pacific Coast Investment Partners. Pacific has teamed up with Jonathan Ledecky, a private investor who owns approximately 1.33 million shares, to find this alternative financing.
But Feinstein responded, the letters from the banks are not actual proposals for refinancings but letters saying they are happy to commence preliminary work on the refinancing. "To have the company give up a deal which it thinks is a good deal in order to explore something that may or may not become available is very difficult for a board," he argued.
Pacific Coast has made arrangements for a recapitalization consisting of $175 million of debt and $30 million in equity financing three separate times. B of A had proposed to arrange a new $115 million facility, but the proposal was withdrawn after B of A was threatened with a lawsuit, according to letter from the bank. A B of A spokeswoman declined comment. It could not be determined who was making the claim against the bank.
Silver Point Capital stepped up with a "B" loan proposal that has remained in place as the first two lending offers were withdrawn. Silver Point would provide a $60 million "B" loan at LIBOR plus 83/4% or prime rate plus 61/4%. Officials at Silver Point declined comment.
Ableco's proposal is for a $100 million revolver, $15 million "A" loan and $60 million "B" loan. The revolver would be priced at LIBOR plus 4% or prime plus 11/2%, while the "A" loan would carry a spread of LIBOR plus 5% or 21/2% over prime. The "B" loan would be priced on a grid tied to senior leverage and would range from LIBOR plus 91/4-11% or prime plus 63/4-81/2%. Kevin Genda, chief credit officer of Ableco, declined comment.
Workflow's facility had a requirement to pay $50 million of the "B" loan by the end of the last calendar year. Fleet Bank leads the facility with Bank One as syndication agent and Bank of America, Comerica Bank and Union Bank of California as co-agents. National City Bank is leading the acquisition financing and is a member of the existing syndicate.
The merger value was increased to $5.375 from $4.87 per share last week, but Chadwick said they believe the company is still way undervalued. Officials at Workflow and Perseus did not return calls. Officials at Renaissance could not be contacted. A stockholder vote on the merger is scheduled for 4 p.m. today.