On Friday, Casa Systems disclosed that it had received an $18mm offer for its 5G cloud and RAN assets, above the $15mm Lumine has agreed to pay. Casa still views Lumine's offer as superior, but given there was no auction, the bankruptcy judge stated she would hold Casa to a heavier evidentiary burden if it decided to proceed with the Lumine deal. We believe there could be near-term downside risk.
Impact: POTENTIALLY SLIGHTLY NEGATIVE
Potential near-term downside risk. Even after the ~6% decline in the stock on Friday, possibly due to these bankruptcy court developments, it is still up ~5% since the deal was announced on April 3, outperforming the S&P 500 (down ~5%), Nasdaq (down ~6%), and S&P/TSX Composite (down ~1%). Accordingly, we believe there could be some modest downside risk to the stock if Lumine's bid is unsuccessful.
Higher offer for Casa assets surfaces. After the close on Friday, a legal news article indicated that Casa Systems, during a status conference, had informed a Delaware bankruptcy judge of an $18mm offer from ESW Capital for its 5G cloud and RAN assets. The rival bid was submitted by a Friday morning deadline and is higher than the $15mm Lumine has agreed to pay Casa.
However, Casa has reportedly declined to open up an auction process for these assets
and believes Lumine's bid is superior despite it being lower than ESW's bid. Casa favours Lumine's bid given its assurances that it could close by the April 29 deadline, expedite employee retention decisions, and it has commitments from Verizon, Casa's largest cloud customer, to continue their business relationship. ESW indicated it could also close by April 29 and make decisions on employee contracts quickly, but no comment was made on the Verizon relationship.
Casa also indicated Lumine does not want to participate in an auction, it would face increased legal/due diligence fees for a new buyer, and that it would also have to pay am ~ $750k expense reimbursement fee to Lumine if the deal is called off.
The article indicated that the bankruptcy judge will place a heavier evidentiary burden on Casa if it proceeds with the Lumine deal. The hearing for the sale is scheduled for this Friday, April 26.
ESW is an old foe. ESW, a Texas-based private equity firm, outbid Constellation for Redknee Solutions (now Optiva) in late-2016. Constellation announced an $80mm preferred share and common share warrant investment in Redknee on December 9, but on December 20, Redknee announced ESW had submitted a superior offer and Constellation did not exercise its matching right.