TANGELO PROVIDES ADDITIONAL DISCLOSURE IN RESPECT OF PROPOSED ARRANGEMENT
- Proposed Arrangement with GoGel Holdings Inc. provides Tangelo Shareholders with certainty of value, immediate liquidity, and significant premium
- Shareholders reminded that Proposed Arrangement is value maximizing and is the ONLY viable option available
- The Special Committee and the Board of Directors of Tangelo recommend that Shareholders vote FOR the all-cash transaction in advance of proxy voting deadline of 10:00 a.m. (Toronto Time) on September 7, 2018. For assistance voting contact Kingsdale Advisors at 1-866-581-1489 or firstname.lastname@example.org
Toronto, Ontario – August 31, 2018 – On July 10, 2018, Tangelo Games Corp. (“Tangelo” or the “Company”) (TSX-VENTURE: GEL), entered into an arrangement agreement (the “Arrangement Agreement”) with GoGel Holdings Inc. (“GoGel”), pursuant to which GoGel will acquire all the issued and outstanding common shares of Tangelo (“Tangelo Shares”) for C$0.02565 per Tangelo Share in cash by way of a statutory plan of arrangement (the “Arrangement”).
The price per Tangelo Share in the Arrangement Agreement provides shareholders of Tangelo (“Shareholders”) with certainty of value, immediate liquidity, and a significant premium with an implied aggregate fully diluted equity value for Tangelo of approximately C$4,727,009.77 million.
This news release is issued for the purpose of providing Shareholders with additional information in respect of the Arrangement and to assist in their deliberations.
Additional Information Relating to Certain Non-Binding Proposals
In 2016, as outlined in the management information circular of Tangelo mailed to Shareholders on or about August 16, 2018 (the “Circular”), Tangelo, with the assistance of a financial advisor, began a strategic review of its alternatives with the goal of improving Tangelo’s capital position to meet its debt obligations and increase value for all shareholders. Through this exhaustive process, which extended throughout 2017, Tangelo engaged in discussions with multiple prospective strategic partners and financial investors.
In early 2018, management of Tangelo met with a strategic third party (the “Third Party”) that expressed interest in acquiring Tangelo. On May 1, 2018, the Third Party made a confidential non-binding proposal to acquire all of the Tangelo Shares, whereby Shareholders would receive C$0.0260 per Tangelo Share and the holders of debt under Tangelo’s term loan facility (the “Term Loan”) (including Third Eye Capital (“TEC”) and a syndicate of lenders) would receive aggregate cash consideration of US$49.6 million in complete satisfaction and discharge of the outstanding debt balance (approximately US$73.4 million), which represented a total enterprise value for Tangelo of approximately US$53.3 million and a shortfall of approximately US$23.8 million of the outstanding debt owed to TEC and the syndicate of lenders under the Term Loan (the “First Proposal”). Following the First Proposal, TEC made an offer that contemplated the Arrangement. Subsequently, the Third Party made a revised non-binding proposal to acquire all of the Tangelo Shares, whereby Shareholders would receive C$0.0310 per Tangelo Share and the holders of debt under the Term Loan (including TEC and a syndicate of lenders) would receive aggregate cash consideration of US$52.6 million in complete satisfaction and discharge of the outstanding debt balance (approximately US$73.7 million), which represented an enterprise value for Tangelo of approximately US$57.1 million and a shortfall of approximately US$21.1 million of the outstanding debt owed to TEC and the syndicate of lenders under the Term Loan (the “Second Proposal”).
After careful review, the Special Committee of Tangelo ultimately determined that such non-binding proposals with the Third Party were simply not viable opportunities as, among other things:
(i) TEC, in its role as administrative agent on behalf of a syndicate of lenders, informed Tangelo, pursuant to its contractual right under the Term Loan to approve certain fundamental transactions, that it would not accept any offer that would permanently compromise any outstanding debt owed under the Term Loan; and
(ii) TEC’s proposal under the Arrangement represented a total enterprise value for Tangelo of approximately US$74.2 million, which is larger than the total enterprise value for Tangelo offered under both the First Proposal and Second Proposal. More specifically, under the First Proposal and Second Proposal, approximately US$23.8 million and US$21.1 million, respectively, in outstanding debt under the Term Loan would be permanently compromised.
As a result of the First Proposal and Second Proposal undervaluing Tangelo, and because the First Proposal and Second Proposal required significant and unrealistic concessions from TEC and the syndicate of lenders in respect of repayment under the Term Loan, and the contractual rights of TEC and the syndicate of lenders relating to such repayment, neither the First Proposal nor the Second Proposal made by the Third Party could be accepted by Tangelo and as such neither non-binding proposal provided a viable alternative to the Arrangement. Other than the confidential non-binding proposals from the Third Party, there have been no bona fide prior offers that relate to the subject matter of or are otherwise relevant to the Arrangement that have been received by Tangelo during the 24 months before the Arrangement was announced.
As disclosed in the Circular, the Special Committee, having received legal and financial advice, carefully reviewed the First Proposal, Second Proposal, and the offer under the Arrangement, and unanimously determined that the Arrangement is in the best interests of Shareholders and unanimously recommended that the Board of Directors approve the Arrangement. The Special Committee and the Board of Directors continue to recommend that Shareholders vote FOR the Arrangement.
Additional Information Relating to the Fairness Opinion
In connection with the Arrangement, Echelon Wealth Partners Inc. (“Echelon”) was retained to consider the fairness, from a financial point of view, of the consideration to be received by Tangelo shareholders pursuant to the Arrangement. In its fairness opinion, Echelon stated that the Arrangement was fair, from a financial point of view, to the Shareholders.
A part of their analysis, Echelon reviewed, considered, and relied upon or carried out, among other things, the following:
- Trading Range – a comparison of the Consideration to the result of a historical trading analysis of Tangelo;
- Comparable Companies Trading Analysis – a comparison of the Consideration against the implied share price of Tangelo based on publicly available financial data of comparable companies;
- Precedent Transactions Multiples Analysis – a comparison of the Consideration against the implied share price of Tangelo based on valuation multiples of precedent transactions in the gaming sector;
- Precedent Transactions Premium Paid Analysis – a comparison of the Consideration against the implied share price of Tangelo based on premiums paid in precedent transactions across the gaming sector; and
- Discounted Cash Flow – a comparison of the Consideration against the results of a discounted future cash flow analysis of Tangelo.
Subject to the assumptions and limitations in its fairness opinion dated July 11, 2018, Echelon has provided the following additional details regarding the results of its application of the five methodologies identified above:
Echelon compared the public trading values of Tangelo over the last 12 months to the Consideration and determined that the Consideration was in line with the historical trading data of Tangelo. The trading range for the last 52-week period for Tangelo was between $0.015 and $0.045, placing the Consideration ($ 0.02565) within this range.
Comparable Companies Trading Analysis
Echelon compared public market trading statistics of Tangelo to corresponding data from selected publicly-traded companies that it considered relevant (the “Comparable Companies Trading Analysis”). Echelon considered the multiples of Enterprise Value to Last 12 Months Revenue (“EV/LTM Revenue”), Enterprise Value to Expected 2018 Revenue (“EV/2018E Revenue”), Enterprise Value to Expected 2019 Revenue (“EV/2019E Revenue”) (together, “EV/Revenue Multiples”), Enterprise Value to Last 12 Months EBITDA (“EV/LTM EBITDA”), Enterprise Value to Expected 2018 EBITDA (“EV/2018E EBITDA”), and Enterprise Value to Expected 2019 EBITDA (“EV/2019E EBITDA”) (together, “EV/EBITDA Multiples”) to be the most relevant metrics for Tangelo in consideration of the Comparable Companies Trading Analysis.
Echelon examined EV/Revenue Multiples and EV/EBITDA Multiples for each of the comparable companies and then applied a range of selected multiples to the corresponding data of Tangelo to calculate an implied share price of Tangelo. The Comparable Companies Trading Analysis resulted in the following multiples:
- EV/LTM Revenue: 2x to 2.9x
- EV/2018E Revenue: 7x to 2.3x
- EV/2019E Revenue: 6x to 2.1x
- EV/LTM EBITDA: 4x to 9.4x
- EV/2018E EBITDA: 4x to 22.6x (skewed by outliers, median at 7.4x)
- EV/2019E EBITDA: 0x to 7.5x
These multiples resulted in the implied share price ranges below (within which the Consideration placed or exceeded):
- EV/LTM Revenue: Negative to $0.06
- EV/2018E Revenue: Negative
- EV/2019E Revenue: Negative
- EV/LTM EBITDA: Negative
- EV/2018E EBITDA: Negative to $0.77 (skewed by outliers)
- EV/2019E EBITDA: Negative
Precedent Transactions Multiples Analysis
The precedent transactions analysis considers transaction multiples in the context of the purchase or sale of a public company. Echelon reviewed publicly available information in connection with 15 transactions involving companies that it considered relevant (the “Precedent Transactions Analysis”). Echelon considered the multiples of EV/LTM Revenue and EV/LTM EBITDA to be the most relevant metrics for Tangelo in consideration of precedent transactions. The Precedent Transactions Analysis implied an EV/LTM Revenue range of 1.3x to 2.4x and a negative share price range (due to the large amount of debt Tangelo carries). In addition, the EV/LTM EBITDA range was 9.6x to 18.2x, implying a share price range of below zero to $0.41 per share, within which the Consideration placed.
Precedent Transactions Premium Paid Analysis
Echelon compared the premiums represented by the Consideration, calculated with reference to the 1-day VWAP, 20-day VWAP, and 30-day VWAP Premium of Tangelo’s respective share prices on the TSXV as at July 11, 2018 to premiums paid for shares of target companies in select change of control transactions (the “Precedent Premiums”) considered by Echelon to be relevant (the “Premium Paid Analysis”).
The premium ranges of the 1-day VWAP, 20-day VWAP and 30-day VWAP Precedent Premiums were 11.4% to 53.2%, 14.0% to 72.1%, and 15.0% to 69.0%, respectively. If these premiums were applied to the share price of Tangelo as at July 11, 2018, the implied share price would have been in the ranges of $0.017 to $0.023, $0.017 to $0.026, and $0.017 to $0.025, respectively, and within which the Consideration placed or slightly exceeded.
Discounted Cash Flow
The Discounted Cash Flow (“DCF”) approach separately considers each subsidiary, consolidates the projected revenue and cost items, and calculates the present value of future cash flows of Tangelo.
For this analysis, Echelon discounted the after-tax, future free cash flows of Tangelo over a period of 5 years, assuming a terminal value, at a prescribed discount rate to generate a present value (the “Fair Value”). All forecasts of future free cash flow for Tangelo were based on Tangelo operating estimates. The DCF approach also requires that certain assumptions be made to derive the Fair Value including, among other things, depreciation and amortization, capital investment, working capital, and discount rates. As part of the DCF analysis, Echelon performed a range of sensitivity analyses on a variety of factors. This included calculating a range of estimated share prices for Tangelo implied by the DCF analysis utilizing a range of terminal value multiples and a range of discount rates.
The DCF analysis resulted in a share price range of $0.0034 and $0.0327, within which the Consideration placed.
Additional Information About the Arrangement
A description of the various factors considered by the Special Committee and the Board of Directors of Tangelo in its determination to approve the transaction and recommend that the Tangelo shareholders approve the transaction, as well as other relevant background information, is included in the management information circular sent to the Tangelo shareholders in advance of the Meeting. The management information circular, the Arrangement Agreement, and certain related documents were filed with the Canadian securities regulators and are available on SEDAR at www.sedar.com.
Vote Today for this Value-Maximizing Offer
Shareholders are reminded every vote counts regardless of how many shares they own and to vote their proxies by September 7th, 2018 at 10:00 a.m. (Toronto Time).
If you have any questions, please contact Kingsdale Advisors at 1-866-581-1489 toll-free in North America, or 416-867-2272 outside North America or by email at email@example.com.
Shareholders that have questions about depositing their shares to the arrangement including with respect to completing the applicable letter of transmittal, please contact TSX Trust, who is acting as depositary under the arrangement, by telephone at 1-(866)-393-4891, by facsimile at 416-361-0470 or by email at TMXEInvestorServices@tmx.com.
About Tangelo Games Corp.:
Tangelo Games Corp., the parent company of Tangelo Israel and Tangelo Spain, is a developer of social and mobile gaming for desktop, iOS and Android platforms. Tangelo Israel and Tangelo Spain design, develop and distribute their top ranked social casino-themed games within online social networks (such as Facebook) and mobile platforms (such as Android and iPhone). All of the Tangelo Israel and Tangelo Spain games are free to play and generate revenue primarily through the in-game sale of virtual coins.
For further information, please contact:
Spyros P. Karellas
President & CEO
Pinnacle Capital Markets LTD.
Cautionary Note Regarding Forward Looking Statements
This press release contains “forward-looking statements” and “forward-looking information” within the meaning of applicable securities laws. These statements and information include information and statements as to management’s expectations with respect to, among other things, the completion of the Arrangement. Often, but not always, forward-looking statements and information can be identified by the use of words such as “may”, “will”, “should”, “plans”, “expects”, “intends”, “anticipates”, “believes”, “budget”, and “scheduled” or the negative thereof or variations thereon or similar terminology. Forward-looking statements and information are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Readers are cautioned that any such forward-looking statements and information are not guarantees and there can be no assurance that such statements and information will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from Tangelo’s expectations are disclosed in Tangelo’s continuous disclosure documents which are filed with Canadian regulators on SEDAR (www.sedar.com), including in the circular that was mailed to Tangelo shareholders in advance of the meeting. Such factors include, amongst others, the receipt of all necessary approvals to complete the arrangement, the timing of the meeting, the receipt of any superior proposals, and the completion of all conditions to the arrangement. Tangelo expressly disclaims any intention or obligation to update or revise any forward-looking statements and information whether as a result of new information, future events or otherwise, except as required by applicable law. All written and oral forward-looking statements and information attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.