Engine Capital Releases Presentation Detailing its Strong Opposition to Veritas’ Insufficient Tender Offer at Houghton Mifflin Harcourt

Rhea-AI Summary

Engine Capital LP, a long-term shareholder of Houghton Mifflin Harcourt Company (HMHC), opposes Veritas Capital's $21 per share tender offer, arguing it undervalues the company at 7.6x 2024 unlevered free cash flow. They claim the process was flawed and highlight that Veritas may achieve a 5-year internal rate of return (IRR) of 31%-37%, indicating a transfer of value from HMHC shareholders. Engine proposes a Dutch tender offer between $21 and $22 per share, potentially raising the share price to $42 within three years.

Positive

• Engine believes a Dutch tender offer could raise HMHC's share price to $42 within three years, implying a potential 26% 3-year IRR for shareholders.

Negative

• The $21 tender offer values HMHC at 7.6x 2024 unlevered free cash flow, deemed inadequate.
• Veritas's offer reflects a flawed process and may allow them to achieve outsized returns at the expense of HMHC shareholders.

Believes Veritas Offer Undervalues HMHC at 7.6x 2024 Unlevered Free Cash Flow and Is the Result of a Flawed Process

Calculates that Veritas May Earn Outsized 5-Year IRR Between 31% to 37%, Underscoring the Inappropriateness of its $21 Tender Offer

Outlines a Superior Plan for Shareholders that Could Result in $42 Per Share Within Three Years

Launches www.DontStealMyHMHC.com to Share Views on the Transaction and Communicate with Shareholders

NEW YORK--(BUSINESS WIRE)-- Engine Capital LP (together with its affiliates, “Engine” or “we”), a long-term shareholder of Houghton Mifflin Harcourt Company (NASDAQ: HMHC) (“HMHC,” “Houghton Mifflin” or the “Company”) with ownership of approximately 2.7% of the Company’s outstanding shares, today issued a presentation detailing its strong opposition to the $21 per share tender offer made by Veritas Capital (“Veritas”). In particular, the presentation highlights the following facts:

• Veritas’ offer values the Company at 7.6x 2024 unlevered free cash flow (“UFCF”) and 6.2x 2024 UFCF if the cumulative cash flow is included.
• This offer is a result of a flawed process conducted by Evercore. Engine believes Evercore is conflicted, and its fairness opinion contains numerous mistakes.
• Recent comparable transactions point to a $25 per share transaction value for HMHC.
• Under most circumstances assessed by Engine, Veritas will earn outsized returns from this transaction. Under management’s forecast, Veritas is set to earn a 5-year internal rate of return (“IRR”) between 31% and 37% at the $21 per share deal price. These outsized IRRs are further evidence of the inappropriateness of the $21 offer and simply represent a transfer of value from Houghton Mifflin shareholders to Veritas.
• Veritas can pay a significantly higher price and still generate a 5-year IRR above 17.5%. Under management’s forecast, we contend Veritas could pay $26 per share and still earn a 5-year IRR between 18% and 23%.
• A superior plan exists for shareholders. Houghton Mifflin should execute a Dutch tender offer between $21 and $22 per share for 19% of its shares outstanding. Assuming management’s projections, Engine believes this plan could result in a share price of roughly $42 at the end of 2024, implying a 26% 3-year IRR for remaining shareholders.

The full presentation is available at www.DontStealMyHMHC.com, a website dedicated to sharing Engine’s views with respect to the Veritas offer. Engine encourages interested parties to visit the website regularly. The presentation can also be directly found at the following link: HMHC Presentation.

About Engine Capital

Engine Capital is a value-oriented special situations fund that invests both actively and passively in companies undergoing change.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220322005539/en/

Investors:

Engine Capital, L.P.

Arnaud Ajdler

(212) 321-0048

DontStealMyHMHC@enginecap.com

Source: ENGINE CAPITAL LP

FAQ

What is the current stance of Engine Capital regarding HMHC's valuation?

Engine Capital believes that HMHC is undervalued at $21 per share and opposes Veritas's tender offer.

What internal rate of return does Veritas potentially achieve with its offer for HMHC?

Veritas may earn a 5-year internal rate of return between 31% and 37% at the $21 per share offer.

What price does Engine Capital propose for HMHC shares?

Engine Capital proposes a Dutch tender offer between $21 and $22 per share.

What is the projected share price for HMHC within three years according to Engine Capital?

Engine Capital projects HMHC's share price could reach approximately $42 within three years.