Toronto, Ontario– July 16, 2015 – Retained executive search firm The Caldwell Partners International Inc. (TSX: CWL) today announced that its Board Chairman received the following letter from DHR International. The Company believes the letter contains a number of inaccuracies and will respond in due course.
July 16, 2015
Dear Mr. King:
We are in receipt of your letter of July 14, 2015 in which you indicate that the Board of Directors of The Caldwell Partners International, Inc. (“Caldwell Partners”) and its Special Committee (collectively, the “Caldwell Board”) has determined not to pursue further discussions with DHR International, Inc. (“DHR”) regarding a negotiated transaction. Your letter also indicates that the Caldwell Board has determined that pursuing discussions with DHR is not “in the best interest of the firm, its shareholders, partners, employees and clients” and that any further meeting between DHR and the Caldwell Board would have a destabilizing effect on the partners. The Caldwell Board’s determination is unsupported, unacceptable for a publicly traded company and violates the board members’ fiduciary duties to its shareholders.
We note that, although we expressed at various points our willingness to acquire Caldwell Partners at a meaningful premium to the trading price of its common shares, at no point during any of our prior contacts did you, Mr. Wallace or other representative of Caldwell Partners ask for more specific information regarding the price at which DHR was interested in pursuing a transaction. We find it untenable that the Caldwell Board’s determination to foreclose any opportunity for the shareholders to realize a premium on their shares be based on a stated justification that is ignorant of any consideration of the size of the premium that DHR is willing to pay.
What we find even more troubling and unacceptable, however, is the purported justification given for the Caldwell Board’s decision. You state in your letter that the Caldwell Board gave thorough consideration of DHR’s letter of July 1st, my July 7th phone call with you, the assistance of your advisors and the “input of your partners.” Based on your letter, that “input” of the partners consisted of “significant concern” expressed by the partners when informed of DHR’s interest in a business combination, and that the partners have “made it clear” that they would not be willing to be part of a firm controlled by DHR.
How can the Special Committee rely on a process in which the individual partners were effectively asked by their superiors if they would prefer to work at another company? Such a process is by definition overly coercive in a manner that would make it unreliable to serve as the basis for an informed business decision and, more importantly, as a basis for the exercise of the fiduciary duties of the Caldwell Board.
We note in particular that the Board does not refer to support from any shareholders other than members of management or partners of Caldwell Partners. As a leading participant in the executive search industry, DHR is acutely aware of the importance of our search executives as the foundation of our business and serving our clients. However, even if the share ownership of management and the partners represents one-third of the outstanding common shares, the Caldwell Board cannot, consistent with its fiduciary duties, fail to conduct any meaningful price discovery and rely on a coercive loyalty poll of its partners as the primary justification to deny the remaining holders of two-thirds of the shares of Caldwell Partners the opportunity to maximize the value of their shares.
The responses that DHR has received from management and the Caldwell Board, when combined with a lack of significant growth in the past five years and excessive compensation paid to management, suggest that Caldwell Partners is operated more like a private partnership for the benefit of its management than a public company focused on principles of good corporate governance, growth and the investment returns of its shareholders. By way of example, in 2014 Caldwell Partners paid its President and Chief Executive Officer, John Wallace, total compensation of C$1,498,372, a whopping 116% of Caldwell Partners’ C$1,262,795 of operating profit for all of 2014.
As the third largest shareholder of the Caldwell Partners, we request that the Caldwell Board supplement the disclosure to the public shareholders of its analysis and process with the following information: (1) the identity of the members of the Special Committee and information supporting their independence; (2) the number of meetings held by the Special Committee without the remaining members of the Board of Directors who are not independent; and (3) a description of the process by which the partners and any other shareholders of Caldwell were contacted for their input, including how many partners and shareholders were actually contacted, whether the process was conducted by the Special Committee or management and how the potential transaction was described to the partners or shareholders given the lack of meaningful discussion on value and premium at this stage.
DHR now holds approximately 1,146,000 common shares, representing approximately 5.38% of the issued and outstanding common shares of Caldwell Partners. The response of the Caldwell Board has not weakened DHR’s belief that a combination of the two companies would result in significant strategic benefits for both companies and their respective stakeholders, including their shareholders, clients, partners and employees. DHR reiterates its strong preference to pursue discussions with Caldwell regarding a consensual transaction between the two companies at the earliest possible time.
Based on DHR’s preliminary review of publicly available information, DHR would be willing to pay between C$1.80 and C$2.00 in cash per common share to acquire 100% of the equity of Caldwell Partners, with the mid-point of such range representing (a) a premium of over 45% over the average trading price in the weeks prior to the June 25, 2015 trading halt which preceded news of DHR’s interest in pursuing a transaction with Caldwell, and (b) a premium of more than double the average five-year trading price.
As we have previously indicated to you, DHR would be able to complete a transaction with available cash on-hand, would not require a financing contingency and does not expect to require any significant regulatory approvals. Consummation of a transaction would be subject to, among other customary conditions, satisfactory completion of confirmatory due diligence review of non-public information, negotiation and execution of a definitive acquisition agreement and receipt of all requisite approvals. Therefore, a transaction with DHR could be completed quickly on the basis of terms ensuring deal certainty for Caldwell and its stakeholders.
We look forward to your further consideration of this important matter.
David H. Hoffmann, Chairman
About Caldwell Partners
Caldwell Partners is a leading international provider of executive search and has been for more than 40 years. As one of the world’s most trusted advisors in executive search, the firm has a sterling reputation built on successful searches for boards, chief and senior executives, and selected functional experts. With offices and partners across North America, Latin America and in London, the firm takes pride in delivering an unmatched level of service and expertise to its clients. Caldwell Partners’ Common shares are listed on The Toronto Stock Exchange (TSX: CWL). Please visit our website at www.caldwell.com for further information.
Forward-looking statements in this document are based on current expectations that are subject to significant risks and uncertainties. Actual results might differ materially due to various factors such as the competitive nature of the executive search industry, the ability of the company to execute its growth strategies, the performance of the Canadian domestic and international economies, and the company’s ability to retain key personnel. The Caldwell Partners assumes no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those reflected in the forward-looking statements.
For further information, please contact:
Investors & Analysts:
Chris Beck, CPA, Chief Financial Officer
The Caldwell Partners International
+1 617 934 1843
Caroline Lomot, Director of Marketing
The Caldwell Partners International
+1 516 830 3535