[September 19, 2017] |
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Progress Software Comments on Letter from Praesidium Investment Management
In response to a letter written to the Board of Directors of Progress
Software (NASDAQ:PRGS) and made public by Praesidium Investment
Management, the Company released the following statement:
We value Praesidium's ideas and perspectives, and always welcome input
from our shareholders. However, Praesidium's mischaracterization of its
engagement with the Company and our Board of Directors is disappointing.
Moreover, Praesidium fails to acknowledge the successful execution of
the strategy we announced earlier this year, which followed a
comprehensive evaluation of the Company's offerings, customer needs and
the rapidly evolving business landscape in which we compete. Our new
leadership team has been executing against the strategic initiatives we
set forth, which are driving results that recently surpassed our own
expectations. Our active share repurchase program, and our dividend
policy, further reflect our Board's focus on driving future value for
all shareholders. We are confident in the merits and efficacy of our
plan and believe it will continue to benefit all shareholders. We look
forward to discussing more on our strategy when we announce our third
quarter results on September 27, 2017.
Furthermore, the Company addressed the following points raised by
Praesidium:
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Progress' strategy, led by the new highly-focused management team,
has driven substantial shareholder value and will serve as the
foundation for sustained long-term success. Our CEO Yogesh Gupta
outlined our strategy to shareholders in January 2017. The cornerstone
of our strategy is to support our large, long-standing installed
customer base with the most complete platform for quickly and easily
building modern mission-critical business applications. We have also
committed to managing our business efficiently to deliver strong
returns for shareholders. For example, in the first quarter of 2017,
we undertook a major restructuring that resulted in a 20% reduction of
headcount. This action, together with prudent expense management
throughout the year, has allowed us to increase our operating margin
from 28% through the end of the third fiscal quarter of 2016 to 34%
for the same period in fiscal 2017.
Our strategy is
producing tangible benefits for shareholders. Our preliminary third
quarter results exceeded our guidance (as did our second quarter
results). We returned more than $60 million in capital via share
repurchases and dividends in the first three quarters of fiscal 2017.
Our confidence in the direction of the business led the Board to
increase the Company's quarterly dividend by 12% and set a new target
payout ratio. On September 14, the day prior to Praesidium's filing of
its letter, Progress shares traded at an all-time high, and our stock
has traded up 33% since we named Mr. Gupta CEO - in our view, a
recognition of the efficacy of our strategy.
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Praesidium's acquisition idea is fundamentally inconsistent with
our corporate strategy and not in the best interest of our
shareholders. Praesidium suggested that we acquire a
private-equity owned company that is a roll-up of various enterprise
applications businesses. This target company provides
vertically-focused ERP, CRM and supply chain applications spanning
over 20 different industries.
Following thoughtful
consideration of this idea, our Board concluded that it was not in the
best interests of Progress or its shareholders. Most importantly, such
a transaction would conflict with our mission to maintain and
strengthen OpenEdge, which accounts for more than two-thirds of our
revenue. Many of the target company's various applications
compete directly with our largest independent software vendors (ISVs)
who have built their applications on OpenEdge. Today, we are
laser-focused on strengthening OpenEdge and enhancing our
relationships with our key ISVs, both of which are vital to further
driving profitability and free cash flow. To pursue a business
combination that would threaten our most important product by
alienating key ISVs and undermining the trust and commitment we share
would, in our view, be imprudent, risky, and potentially destructive
to shareholder value.
Our Board and management also had
serious concerns about Praesidium's $1.2 billion enterprise valuation
of the target company. We were aware of publicly-reported rumors that
the owner of the target company had recently tried and failed to ell
the business at even lower valuations. Furthermore, Praesidium's idea
called for Progress to dilute its shareholders by issuing an
additional 20% equity position, while also assuming the target
company's debt, which would likely result in a substantial increase in
our financial leverage. That, in turn, could potentially restrict our
ability to continue our shareholder-friendly policy regarding share
repurchases and dividends. Lastly, our Board was skeptical that the
purported sellers believed there would be any real strategic or
financial rationale for a combination given that they never contacted
either Progress or its advisors directly.
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Our Board, led by Chairman John R. Egan, is committed to acting in
shareholders' best interests and providing strong, independent
oversight of the Company. Praesidium's September 15th
letter mischaracterizes its interactions with our Board and
management, our willingness to consider adding new directors and our
commitment to responsible governance. We have added three new
directors to our seven-member Board in the last year. We continually
look for ways to strengthen our Board and enhance our governance
practices. In fact, prior to Praesidium's release of its September 15
letter, we informed Praesidium that our Nominating & Corporate
Governance Committee would like to speak directly with their proposed
candidates.
We are also confused by Praesidium's personal
attack on Mr. Egan, who enjoys the support of the full Board. Mr. Egan
is an accomplished executive and public company director. Moreover, as
recently as July 24, Praesidium acknowledged in writing Mr. Egan's
work as a Progress director, stating that they knew he always acted
with the intent to do the right thing for shareholders, and expressing
"tremendous respect for him as a businessman".
Conversely,
our Board is concerned that Praesidium is not acting in all
shareholders' best interests. As stated above, Praesidium's
acquisition idea is imprudent, risky, and potentially destructive to
shareholder value, with financial terms that are unfavorable to our
shareholders. In addition, Praesidium has reduced its stock position
in Progress by more than 35% during the past 12 months, including
transactions that occurred while they have been engaged in discussions
with our Board.
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Our Board and management have been, and will continue to be,
committed to open and constructive dialogue with all shareholders,
including Praesidium. As Praesidium admitted, its principals have
had dozens of discussions with us over the past several years,
including multiple meetings with Mr. Egan this year. Furthermore, all
of our board members have met with Praesidium to hear their insights
directly. In summary, the entire Board, together with our external
advisors, have devoted significant time to considering Praesidium's
ideas. We have also stated publicly and directly to Praesidium our
willingness to continue discussions with them about their ideas and
perspectives.
Of course, we typically do not comment
publicly on our discussions with shareholders. However, on August 2,
Praesidium amended its 13D filing, noting that it had engaged in
discussions with our Board, and included a reference to their
acquisition idea. In order to communicate transparently with all
shareholders on an important corporate matter, we determined it was
appropriate to note in our September 12 letter that our Board had duly
considered and rejected Praesidium's idea.
Note Regarding Forward-Looking Statements
This press release contains statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Progress has identified some of these forward-looking
statements with words like "believe," "may," "could," "would," "might,"
"should," "expect," "intend," "plan," "target," "anticipate" and
"continue," the negative of these words, other terms of similar meaning
or the use of future dates.
Forward-looking statements in this press release include, but are not
limited to, statements regarding Progress' business outlook and
financial guidance. There are a number of factors that could cause
actual results or future events to differ materially from those
anticipated by the forward-looking statements, including, without
limitation:
(1) Economic, geopolitical and market conditions, including the
uncertain economic environment in Europe as a result of the Brexit vote,
and the continued difficult economic environment in Brazil and other
parts of the world, can adversely affect our business, results of
operations and financial condition, including our revenue growth and
profitability, which in turn could adversely affect our stock price.
(2) We may fail to achieve our financial forecasts due to such factors
as delays or size reductions in transactions, fewer large transactions
in a particular quarter, fluctuations in currency exchange rates, or a
decline in our renewal rates for contracts. (3) Our ability to
successfully manage transitions to new business models and markets,
including an increased emphasis on a cloud and subscription strategy,
may not be successful. (4) If we are unable to develop new or
sufficiently differentiated products and services, or to enhance and
improve our existing products and services in a timely manner to meet
market demand, partners and customers may not purchase new software
licenses or subscriptions or purchase or renew support contracts. (5) We
depend upon our extensive partner channel and we may not be successful
in retaining or expanding our relationships with channel partners.
(6) Our international sales and operations subject us to additional
risks that can adversely affect our operating results, including risks
relating to foreign currency gains and losses. (7) If the security
measures for our software, services or other offerings are compromised
or subject to a successful cyber-attack, or if such offerings contain
significant coding or configuration errors, we may experience
reputational harm, legal claims and financial exposure. (8) We have made
acquisitions, and may make acquisitions in the future, and those
acquisitions may not be successful, may involve unanticipated costs or
other integration issues or may disrupt our existing operations. For
further information regarding risks and uncertainties associated with
Progress' business, please refer to Progress' filings with the
Securities and Exchange Commission, including its Annual Report on Form
10-K for the fiscal year ended November 30, 2016. Progress undertakes no
obligation to update any forward-looking statements, which speak only as
of the date of this press release.
About Progress
Progress (NASDAQ:PRGS)
offers the leading platform for developing and deploying
mission-critical business applications. Progress empowers enterprises
and ISVs to build and deliver cognitive-first applications that harness
big data to derive business insights and competitive advantage. Progress
offers leading technologies for easily building powerful user interfaces
across any type of device, a reliable, scalable and secure backend
platform to deploy modern applications, leading data connectivity to all
sources, and award-winning predictive analytics that brings the power of
machine learning to any organization. Over 1,700 independent software
vendors, 100,000 enterprise customers, and two million developers rely
on Progress to power their applications. Learn about Progress at www.progress.com or
+1-800-477-6473.
Progress and Progress Software (News - Alert) are trademarks or registered trademarks
of Progress Software Corporation and/or its subsidiaries or affiliates
in the U.S. and other countries. Any other names contained herein may be
trademarks of their respective owners.
View source version on businesswire.com: http://www.businesswire.com/news/home/20170919005552/en/
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