- Incumbent board lacks relevant expertise and experience to compete in rapidly evolving and highly competitive industry
- Board has a history of strategic confusion and value destruction
- Columbia Pacific intends to nominate four highly qualified candidates for the Board
TORONTO, Dec. 18, 2015 /CNW/ - Columbia Pacific Advisors, LLC ("Columbia Pacific" or "we"), holder of 16.2% of the outstanding common shares of TeraGo Inc. ("TeraGo", or the "Company")(TSX: TGO), today sent a letter to the board of directors of TeraGo (the "Board").
The full text of the letter follows:
December 18, 2015
Board of Directors
55 Commerce Valley Drive West
Thornhill, Ontario L3T 7V9
Ladies and Gentlemen:
As you are aware, Columbia Pacific Advisors, LLC ("Columbia Pacific" or "we") is a significant, longstanding shareholder of TeraGo Inc. ("TeraGo", or the "Company")(TSX: TGO), with ownership of approximately 16.2% of the outstanding common shares of the Company. As the Company's second-largest shareholder, our interests are entirely aligned with the Company's Common Shareholders'. Although we were fortunate to acquire much of our position near all-time lows, most public shareholders have sustained significant losses, as TGO is down more than 60% since its initial public offering and has been in a nearly uninterrupted slide over the past three years. Throughout, TeraGo's Board has been behind the curve strategically, indifferent to the views of Common Shareholders, and well compensated as a group. TeraGo's entry into the data center and cloud services industry has put it in a rapidly evolving, highly competitive space with some of the most well capitalized companies in the world. While we believe this market offers significant opportunities for TeraGo shareholders, the potential for missteps is high, we are aware of many companies that are struggling to execute similar business plans, and, quite frankly, the track record of TeraGo's Board of Directors (the "Board") leaves us with grave concerns.
Over the last year, we have expressed our concerns to you that the Board lacks the necessary and relevant industry, strategic, capital allocation, and investor relations expertise to adapt to a fast-changing business and technology climate and to deliver value for shareholders. Unfortunately, the Board has not acted on our suggestions as shares have continued to languish, falling 30.3% in 2015.
The Board's continued failure to act has created a frustrating and untenable situation for shareholders like Columbia Pacific who are interested in preserving and enhancing the long-term value of our investment. As a result, we have taken the extraordinary step of finding four independent, highly-qualified individuals who can bring relevant industry experience and a shareholder-focused perspective to the current Board. We call on the Board to immediately convene and thoughtfully consider the appointment of these individuals to the Board at the earliest possible opportunity to replace four of the current incumbent directors.
The outstanding qualifications and expertise of these four candidates should be immediately clear upon review of their respective bios below. Should you fail to give immediate and serious consideration to their appointment, we are fully prepared to requisition a special meeting of shareholders to elect these individuals to the Board in the place of four incumbent directors. The Board's continued intransigence has made it necessary for us to step forward and protect shareholder interests from further value destruction.
We believe change is desperately required for reasons including:
- Shareholder Value Destruction – TeraGo went public in June 2007 at C$11.75/share. As of the December 17, 2015 close the price had declined to C$4.50/share, a 62% price decline (with no dividends) over eight-and-a-half years;
- Limited Relevant Experience – Current Board members have little or no experience in the data center and cloud industry, despite shareholder requests to add individuals with relevant experience and expertise to the Board;
- Ill-conceived Fiber-optic Plan – Upon conclusion of a strategic review process in April 2013, the Company announced its intention to build a fiber-optic service delivery platform. Fortunately nothing significant came of this plan. As a woefully undercapitalized, late-to-the-party player in fiber-optic, TeraGo stood no chance. However, at the time the Special Committee of the Board formed to evaluate TeraGo's strategic options concluded, "We believe that the enhanced business plan the Company is announcing today, coupled with the continuing momentum from TeraGo's record results in 2012, offers the most attractive alternative for continuing shareholder value creation." TGO shares today languish 48.7% below the last closing price prior to the announcement;
- Acquisition of Data Centers with Obsolete Strategy – A month after announcing the Company's pivot into fiber-optic, TeraGo surprised shareholders and announced a C$9.5 million acquisition of Data Centers Canada Inc. This acquisition was agreed four months after U.S. leader Rackspace had seen its stock peak and begin a relentless 58% slide, as it became clear to the market that basic colocation/hosting businesses were being commoditized. Fortunately, current CEO Stewart Lyons, who was hired in January 2014, identified the weakness in the Company's competitive position and worked quickly to "move up the stack" into higher-value services; and
- Lost Interest of the Market – Trading at less than 5.5x run rate EBITDA with average daily volume of fewer than 10,000 shares, TeraGo's stock is lost in the public market. A C$10 million secondary offering, completed in June at $5.70, 26.7% above yesterday's close, was poorly received and has left the shares with a significant overhang.
Our highly-qualified nominees are proven leaders with exceptional track records of value creation within U.S. and Canadian technology companies. Their qualifications include relevant and deep expertise leading cloud and data center businesses and the ability to communicate shareholder value to the market. Their successes include repositioning public and private companies and leading subsequent sales to strategic buyers, including Cogeco, CenturyLink, and IBM, which delivered substantial gains for shareholders.
We believe these outstanding candidates will ensure TeraGo focuses capital and other resources on the highest return opportunities, avoids strategic pitfalls, and effectively conveys its story to the investment community while providing management with world class support.
Nominees for Consideration
Mr. Gary N. Sherlock served in roles including Chief Executive Officer and Co-CEO of Peer 1 Dedicated Hosting Inc. for eight years. During that time, he led a turnaround of Peer1 Hosting, which was in financial and operational distress, repositioning the company strategically upmarket, restructured the organization, expanded domestically and globally, growing to 570 employees while delivering best in class operating metrics. Peer1 was acquired by Cogeco Cable in January 2013 for $650 million. Prior to joining Peer1, Mr. Sherlock was Vice President, business development and Controller at B.C Hydro and Power Authority. He has over 20 years of experience in executive positions in both corporate and operational roles in a multi-billion-dollar environment. Mr. Sherlock has spoken at conferences around North America on risk management, business planning and activity-based costing. Mr. Sherlock is a Chartered Accountant and Certified Management Accountant. He graduated with distinction with a Bachelor of Administration from the University of Regina.
Mr. Matthew Gerber brings more than 25 years of experience and proven leadership in growing technology companies and presently serves as chief executive officer of Digital Fortress. Digital Fortress provides hybrid IT infrastructure management solutions, including managed Amazon Web Services, Microsoft Azure, and colocation. Prior to joining Digital Fortress, Mr. Gerber was a board member and executive at 2nd Watch, and was pivotal in building the organization into one of Amazon Web Services' largest Premier Partners. He also held chief executive roles at IT-Lifeline, a cloud-based disaster recovery company and SprayCool, a data center cooling infrastructure provider. Mr. Gerber previously served as a board member for the Blue Box Group, an OpenStack cloud software and services company that was sold to IBM, and currently is a director at Pearson, a robotics packaging machinery company, and Rohinni, a developer of next generation lighting technology. Mr. Gerber holds a degree in electrical engineering from Stony Brook University and an MBA from Hofstra University.
Mr. Stuart Haas is a seasoned finance professional with over 20 years of leadership experience creating value in high growth / rate-of-change global organizations. As Senior Vice President, Investor Relations and Treasurer of Expedia, Mr. Haas was responsible for Expedia's investor relations function, as well as its capital markets transactions, investment management, global expansion support, risk management, and M&A diligence. At Amazon.com, Mr. Haas held roles as Director of Corporate Development and Director of Investor Relations. In his Investor Relations work with Expedia and Amazon Mr. Haas was responsible for the companies' SEC filings and earnings calls, as well as all outbound and inbound investor communications. In these roles he built and maintained relationships with over 100 high quality buy-side investors and sell-side analysts. Mr. Haas has an MBA from Stanford University Graduate School of Business, a master of arts in history from Stanford University and a bachelor's of economics from Bucknell University. Mr. Haas also earned the CFA charter.
Mr. Matthew Schiltz is an experienced senior executive with a proven track record of building successful, high growth technology and cloud companies ranging from the private start-up stage to public companies. As chief executive officer of Conga, he is responsible for setting Conga's growth strategy, which includes financing, acquisitions, driving global sales and expanding product offerings. Mr. Schiltz's extensive executive management and leadership experience in driving strong company growth has resulted in several Inc. 500, Fast 50 and Top 100 Places to Work awards. Past CEO successes include Insightful Corporation (NASDAQ: INFUL), DocuSign (a $3.2B market leader), Tier 3 the leading public cloud platform company acquired by CenturyLink in 2013, and Blue Box Group the leading private cloud platform company acquired by IBM in 2015. Mr. Schiltz has received several industry accolades in recognition of his past successes and is considered an expert on software, technology and cloud business practices. Mr. Schiltz has an MBA from Seattle University and a bachelor's of science from the University of Washington.
In coming quarters, TeraGo will confront critical decisions about which businesses it should pursue and how it will create sustainable competitive advantage in rapidly changing, highly competitive end markets. Precise execution could provide substantial gains, while a misstep may permanently impair value. Our Board nominees confronted these challenges in their own companies and thrived. They know the key actors and trends, both in Canada and the U.S., and can help TeraGo "skate to where the puck is going."
TeraGo's current nine-member Board is at the upper boundary of a reasonable number for a company of its size. Therefore, we would like to see each of our nominees replace an existing Board member. At this stage, we believe it preferable for the Board to identify current members to be replaced, but failing that we will make the determination in our own judgment and in consultation with our fellow shareholders.
Columbia Pacific believes that the current Board has limited relevant experience in the data center and cloud industry and is ill-equipped to navigate the complex next stage of the Company's development. Given the abysmal performance of TeraGo's shares under the current Board's stewardship and the Company's high risk/high return strategic positioning, we do not believe shareholders should have to wait another minute to receive highly-qualified and aligned board representation.
As we have noted, we have attempted to discuss our concerns with TeraGo's current Board with unsuccessful results. Columbia Pacific reserves the right to take whatever future actions we believe may be necessary to protect the best interests of shareholders, including the requisitioning of a special shareholder meeting to elect the highly-qualified individuals we have proposed. It is time for shareholders to have highly-qualified and experienced representatives in the boardroom who can help propel the Company to the next level and deliver long term value to its shareholders.
Columbia Pacific Advisors, LLC
Columbia Pacific has retained Olshan Frome Wolosky LLP and Goodmans LLP as its legal advisors, and Bayfield Strategy, Inc. as its strategic and communications advisor in this matter.
About Columbia Pacific Advisors, LLC.
Columbia Pacific Advisors, LLC is a SEC registered advisor that manages assets of over US$1 billion in a variety of alternative investment strategies. The firm has deep experience in real estate, public and private equity, distressed debt and special situation lending. Columbia Pacific Advisors, LLC is headquartered in Seattle, WA.
SOURCE Columbia Pacific Advisors, LLC