Shareholders, page-48

My summary follows:

TSN and the Board are still keen to purchase TSI - but is has to be at right price to allow it to be financed and to ensure there is sufficient working capital to fund the future growth of TSI. The current share price makes this very difficult without massive dilution for existing shareholders and the TSN Board are not prepared to do this unless the result is obviously very value accretive, low risk and a short time frame. What’s more, why would shareholders even vote for such an acquisition if these criteria were not met, (and a shareholder vote would be required).
Demonetisation greatly impacted the rationale of acquiring TSI at the time … the negative impact on revenues and profitability increased the risk and, furthermore, the debt:equity mix would have had to be decreased (ie more equity, less debt) as serviceability of the debt would have been lower (due the drop in EBITDA in TSI), resulting in even greater dilution for the existing shareholders. Transaction numbers are improving steadily as are revenues and profitability.
If a third party makes an offer for TSI, there are 2 outcomes under the existing shareholder’s agreement with CX ... we can make an offer, or we also have the option of “tagging along” at that valuation.
The other consideration for the Board is what type of immediate revenues could TSN receive from buying any other company instead (ie the opportunity cost of using the funds in TSI v elsewhere)? This is where cybersecurity acquisitions fit in to the picture. Firstly, the intention is to acquire entities that require minimal capital raising so as not to dilute existing holders. Secondly, any acquisitions must fit strategically with TSI (ie multiple cross selling opportunities between the TSI business and the customers of any new acquisitions, and vice versa). This provides greater opportunities to improve revenue quickly post any dilution involved with acquiring TSI. Furthermore, any acquisitions that are positive in their own right will increase the share price … thus making the acquisition of TSI easier (ie less dilution).

So in summary what did I take out of all of this? …. A Board that is protecting shareholder value rather than rushing into an acquisition “at any cost”. Further, there is no need to rush as we have the opportunity to either match/counter any offer CX receives or, alternatively, if the price is “too high”, we can sell and maximise the value of the investment based upon an open market valuation (ie the other bid received).
Without doubt TSN want to acquire TSI but this will be done on TSN’s terms (ie they won’t be rushed). Demonetisation was a huge disruption and this changed the timelines but not the strategy ….. and the TSI business has almost recovered completely from that shock. What’s more, the cyber security opportunities being considered are strategically an excellent fit but they are also important in assisting with the financing of any acquisition of TSI …. while also generating value to shareholders as standalone businesses. And kudos goes to Jeff for identifying them IMO.
Hence my earlier comment, “My level of trust/faith in the CEO, Board and the future of TSN have improved immeasurably.”

MartyW