The Donerail Group Responds to Turtle Beach

Thursday, 26. August 2021 22:05

Highlights Board’s Efforts to Obfuscate and Distort the Record Regarding Donerail’s Acquisition Overtures

Remains Hopeful That Good Faith Negotiations Are Still Possible

LOS ANGELES, Aug. 26, 2021 (GLOBE NEWSWIRE) -- The Donerail Group LP (together with its affiliates, “Donerail”, “We”, or “Us”), one of the largest shareholders of Turtle Beach Corporation (the “Company” or “Turtle Beach”), responded today to Turtle Beach’s press release issued on August 23, 2021:

While Turtle Beach stated in its release that Donerail’s public statements had been “misleading”, the Company failed to detail how any of Donerail’s previous public statements were misleading and, instead, proceeded to present its own narrative misrepresenting Donerail’s acquisition efforts to date.

We read Turtle Beach’s August 23rd press release with great disappointment, as the Turtle Beach Board of Directors (the “Board”) has grossly distorted the facts and circumstances regarding Donerail’s acquisition efforts in order, we believe, to further its self-serving entrenchment efforts.

In the Company’s release, we are at least gratified that the Board acknowledged its rejection of our revised, heightened $36.50 offer, which it claims was due to fact that the Board “did not view Donerail’s acquisition price to be sufficient”. We believe all shareholders deserve an explanation as to why this Board outright rejected a proposal that would provide a 42% premium from last Wednesday’s share price and a 32% premium from yesterday’s closing price.

And while our principal concern begins and ends with the Company’s distorted view of value and stubborn refusal to explore value-maximizing acquisition offers, the balance of the Company’s August 23rd press release served as an unexpected effort to misdirect shareholders on the recent series of events, introducing significant concern regarding the Board’s ability to credibly uphold its fiduciary obligations to shareholders.

  • Financing Capabilities. In its press release, Turtle Beach stated that it had “concerns regarding Donerail’s…financing sources” and that “the Company has not yet received satisfactory evidence of Donerail’s financing sources”. The truth is that although the Company did initially focus on our financing capabilities, we subsequently worked collaboratively with Turtle Beach’s financial advisor, Bank of America, to provide them exhaustive details regarding the financing construct for our proposal and how we planned to secure the debt and equity capital it contemplated.

    Ultimately, the Board’s financial advisor communicated to us on July 9th, 2021, that the Board’s concerns about our ability to finance our proposal to acquire the Company had been largely allayed, that it considered Donerail’s proposal both “credible” and “fundable”, and that it was prepared to move forward to discuss price.

    We had not heard any further challenges to our ability to finance our proposal until the Company’s August 23rd, 2021, press release. Rather, what was, in fact, made clear was that on July 9th the Board rejected our $34.50 offer price and refused to engage with us unless we “meaningfully” increased our offer price. This critical July 9th interaction clearly indicated that our financing was not a principal concern in the least: price had become the primary focus.

    As a result of the July 9th rejection of our $34.50 offer price, we proactively chose to bid against ourselves, and we raised our offer price to $36.50 per share, subject to confirmatory due diligence. Naturally, we understood that the process of conducting such due diligence would entail executing a non-disclosure agreement (“NDA”). Unfortunately, the Board proposed an NDA that we doubt any rational person would sign.
  • The NDA. In its press release, Turtle Beach detailed that “Donerail has…refused to further engage with Bank of America on a customary NDA”. Such a statement grossly misrepresents the cadence and history of discussions between the Company and Donerail.

    The first iteration of the NDA proposed by the Board was far from “customary”. It not only included a highly restrictive two-year standstill, which is off-market for a financial buyer, but it also included a provision that would make us liable for a $5,000,000 cash penalty merely by alleging that we had breached its confidentiality provisions – without any need to prove it. Such an egregious term that creates an uncontrollable, significant liability is not typically found in an NDA. We doubt any sophisticated party would be willing to agree to any such clause, and we advised the Board that we certainly would not.

    The offensive $5 million presumption of liability clause remained in the proposed NDA until August 14th, 2021, and when the Board finally agreed to remove it from the NDA, the restrictive two-year standstill remained. At the same time, however, the Board clearly indicated that our $36.50 offer price was still unacceptable. This Board’s confusing actions forced us to continue to question its good faith in pursuing a potential transaction. What is the point of signing an NDA to incur meaningful restrictions if the Board is telling you, in no uncertain terms, that the process will be futile because your price has already been rejected?

    Lastly, the Company’s press release detailed an unwillingness by Donerail to provide a Due Diligence Request List to Bank of America. Such a complaint is quite trite. Given we have limited desire to sign an NDA with the Company assuming their continued rejection of a $36.50 offer, providing the Company with a Due Diligence Request List that they cannot respond to is nothing more than a futile exercise. With that being said, in order to provide a sign of good faith upon their request, we will be sending our initial Due Diligence Request List to the Board in short order.

Let shareholders not be confused: Donerail is one of the largest shareholders of the Company; has engaged with the Company in good faith in an attempt to acquire it; has provided robust and comprehensive details to the Board and its financial advisor regarding our prospective acquisition financing; and has attempted for months to review confirmatory diligence to confirm our price and finalize our bid. But the most salient fact remains: the Board has rejected a bona fide $36.50 offer with the Company’s stock price trading meaningfully lower. We do not understand the Board’s actions, and shareholders have a right to be concerned.

Turtle Beach is a unique, strategic and defensive brand with highly durable and highly visible cash flows. Notwithstanding the disappointing quality of engagement heretofore with the Board, we are hopeful that the Board recognizes the Company needs to be sold immediately and that we stand willing to engage as a prospective buyer.

About Donerail

The Donerail Group LP is a Los Angeles-based investment adviser that employs a value-oriented investment lens focusing on special situations and event driven investments.

Investor Contact:
Wes Calvert, (310) 564-9992

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