Callidus is in the business of lending to companies that cannot obtain bank financing, and it has taken over clients if they were unable to make the payments.CHRIS HELGREN/Reuters
A bitter episode for investors looks set to end on Thursday when shareholders of Callidus Capital Corp. vote on a bid to take the alternative lender private at a fraction of its one-time value.
Braslyn Ltd. has offered to buy Toronto-based Callidus’s minority shares for 75 cents apiece, and the Callidus board’s special committee has urged investors to accept the deal to avoid being left owning shares with no value. For the offer to be successful, a majority of the minority shares must be voted in favour.
Callidus’s largest shareholder is Catalyst Capital Group Inc., the private-equity firm led by Toronto-based financier Newton Glassman. The completion of the deal would cap a tumultuous period for the company and for Mr. Glassman, who has dealt with business and legal setbacks as well as personal struggles.
He took Callidus public at $14 a share in 2014 and had sought a buyer for the past three years. During that process, Mr. Glassman set a target price based on a National Bank Financial valuation that pegged the company’s worth at $18 to $22 a share.
However, efforts were hampered by the company’s deteriorating financial position and several consecutive quarterly losses, a situation that has hurt shareholders as well as investors in Catalyst’s own funds. Catalyst has a 71-per-cent stake in Callidus. In the end, only Bahamas-based Braslyn tabled a bid, and it was worth far less than first contemplated.
Callidus is in the business of lending to companies that cannot obtain bank financing, and it has taken over clients if they were unable to make the payments. Some of the subsidiary companies have continued to lose money under Callidus ownership. The financial woes, and Mr. Glassman’s numerous legal battles, have been a topic of conversation on Bay Street.
Braslyn, which currently has a 14.5-per-cent stake in Callidus, is an affiliate of Tavistock Group, a holding company owned by British billionaire Joe Lewis. The offer, worth about $5.3-million, represents a small sum for Mr. Lewis, though it lays bare the destruction of value at Callidus, which once had a market capitalization of more than $1-billion. At the offer price, its equity has dwindled to less than $43-million. As part of the deal, Braslyn will pocket 15 per cent of the proceeds of future Callidus asset sales.
Even after it is removed from the public market, Callidus’s fortunes will remain key to the investors in Catalyst’s funds, a roster that includes Canadian and U.S. pension funds, endowments and wealthy individuals. Callidus equity represents large positions in some of the funds, while Catalyst has also provided debt financing and has guaranteed Callidus loans.
Callidus owes $421-million to Catalyst, which has said it would not extend its loans beyond 2020 if shareholders do not give their nod to the Braslyn offer.
Callidus executives have contended that the company’s performance was hampered by short-sellers and their allies in an alleged scheme to orchestrate and publicize whistle-blower complaints to securities regulators in 2017. The matter is the subject of a long-running lawsuit, launched by Callidus and Catalyst. Many of the defendants have denied the allegations and one, West Face Capital, has countersued. The case has yet to be heard in court.
Mr. Glassman and Catalyst have sued West Face and its founder, Greg Boland, for other alleged misdeeds as well, stemming from West Face’s acquisition of cellphone provider Wind Mobile in 2014. West Face and its allies snapped up the company for $300-million, and 18 months later sold it to Shaw Communications for $1.6-billion. Catalyst, which had previously been in talks to acquire Wind, argued that West Face had obtained insider knowledge of its negotiations when it hired a former Catalyst analyst, a claim West Face denied. Catalyst has lost court decisions as well as appeals in the cases.
However, special board committee chairman David Sutin said in September that Callidus’s worsening finances were a big factor in its inability to attract higher privatization offers. He also cited a host of senior staffing changes, including medical leave taken by Mr. Glassman in 2018 due to back problems, and the sudden departure of his interim replacement, Patrick Dalton, in March.
Mr. Glassman has not returned as CEO, though he remains chairman of both Callidus and Catalyst. Callidus announced another significant departure in late September, when it said David Reese had been terminated as president and chief operating officer.
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