ClearBridge Issues Letter to Duff & Phelps; Urges Negotiating Over Going-Private Offer
ClearBridge Investments today urged the Board of Directors of Duff & Phelps Corporation (NYSE: DUF) to negotiate in the best interests of shareholders with respect to their offer to take the firm private. The text of the letter from ClearBridge Investments follows.
The Board of Directors Duff & Phelps Corporation c/o Noah Gottdiener Chief Executive, President and Chairman 55 East 52^nd Street New York, NY 10055
January 24, 2013
Dear Mr. Gottdiener,
ClearBridge Investments has been a long-term shareholder of Duff & Phelps Corporation. We believe management has built a high quality platform, demonstrating superior financial metrics and discipline in the financial advisory sector, with excellent long-term growth prospects.
During several conversations with you and CFO Pat Puzzuoli, ClearBridge has been supportive of management's ambitions to improve operating profitability while selectively acquiring talent and congruent businesses to grow shareholder value.
While the company has made several acquisitions consonant with those long-term goals, the repeated secondary placements (approximately $270 million of equity offerings since 2009) of stock depressed valuation consistently below the September 2007 initial public offering price ($16 per share.) As a result, the December 30, 2012 announcement of the proposed acquisition, by a Carlyle Group led consortium with participation by management, at $15.55 per share, substantially undervalues the business in our view.
The Board and management may be factually accurate that the offer is at a 19.2% premium to the December 28, 2012 closing price and a 27.3% premium to volume weighted average share price in the prior thirty days. Yet the difficult reality is that the stock price had deteriorated for many months and was likely depressed further by year-end tax selling.
The offer neither exceeds the stock price highs of 2012 ($16.20) let alone the peaks of 2009 in the low $20s per share. With the repeated overhang from secondary sellers now largely complete, the stock has been poised for a strong rebound and broader recognition by institutional investors.
In our view, the company generates substantial free cash flows and returns on capital which have been largely overlooked and underappreciated by equity investors, but which will now be captured by the private equity group. Further, the transaction as proposed is eminently financeable and will provide outstanding returns on capital for the non-public shareholders, to the detriment of current Duff & Phelps public shareholders.
While we can appreciate that managing a company out of the public marketplace may be consistent with long-term management goals, it is the fiduciary duty of Duff & Phelps's management and Board to negotiate in good faith and act in the best interest of Duff's public shareholders.
We urge the Board and its advisors to exhaustively pursue all alternatives, including a higher offer price, during the "go shop" period which would reward the long-term shareholders of Duff & Phelps who have endured significant underperformance and opportunity cost over the past five years. Please be in touch with us at your earliest convenience to discuss these issues.
Aram Green Jeffrey Russell, CFA Managing Director Managing Director
About ClearBridge Investments
ClearBridge Investments is a global equity-focused manager with approximately $57.2 billion in assets under management, as of December 31, 2012. Established in 2005 with a legacy that dates back over 45 years, ClearBridge's long-tenured portfolio managers and fundamental research team focus on building equity portfolios for clients who seek income solutions, high active share or low volatility. Owned by Legg Mason, ClearBridge operates with investment independence from headquarters in New York and offices in San Francisco and Wilmington.
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