Discusses the offer, Punch’s response and ownership trends over the previous 10 years
On Thursday afternoon post-market close, boutique investment advisory firm Punch & Associates filed a Schedule 13D with the SEC for New York based firm, Pzena Investment Management (NYSE:PZN) objecting to a privatisation offer put forth by management.
The history of this transaction began on the 26th of July, with news of the “agreement” being released simultaneously with PZN’s second quarter results.
Q2 2022 hedge fund letters, conferences and more
Pzena management at the time announced that they had “entered into an agreement” to become a private company through a transaction in which PZN shareholders would receive $9.60 per share in cash, implying an enterprise transaction valuation of ~$795 million.
Management highlighted that the $9.60 per share price tag represented a ~49% premium to PZN’s closing share price on the 26th of July 2020 and a ~46 premium over the 90-day VWAP price.
In addition to the transaction, management noted that the third quarter dividend of 3 cents per share would be paid out as announced with the result.
Upon completion of the transaction, Pzena Investment Management would become a privately-held company owned by existing partners of the firm.
The company then highlighted that all of Pzena’s leadership and investment professionals were anticipated to remain at the firm and would retain substantially all of their equity interest in the business, effectively buying out the other shareholders on the register.
Pzena’s largest institutional shareholder, Punch & Associates responded by sending a letter to the Board of Directors.
The letter discussed the disgruntled shareholders' thoughts on the offer, highlighting the continuous 13 years of ownership on the register that was charaterized by a “long and pronounced anti-value cycle, which placed pressure on Pzena’s fundamentals and market multiple for years”.
Punch & Associates noted how on each of the earnings calls, CEO and Chairman Richard Pzena would instil confidence in its investors during the challenging growth vs value investment cycle that would eventually turn, resulting in PZN being recognized and rewarded for sticking to its value principals.
In the current year of 2022, with the onset of inflation and rising rates, the value to growth thematic has taken a turn with investors and allocators reshaping investment preferences towards value stocks.
Punch then highlighted that shareholders have waited patiently through the anti-value cycle for much of the last decade which is beginning to turn as evident by Pzena being selected as a co-manager of the $7 billion Vanguard Global Equity Fund which was the largest single inflow in the company's history.
Punch accompanied the letter with the below statements to the Board and chart to the right that illustrates the proposal vs the highest quarterly share repurchase prices:
“We believe the proposed transaction is nothing more than an opportunistic bid for illiquid shares during a weak market by Pzena insiders, at the expense of minority shareholders.”
And,
“We urge the Special Committee to renegotiate the transaction price to include a control premium which we would expect in any “take private” transaction, and not settle for an opportunistic bid for an illiquid stock in a market downturn”
It is unclear how the rest of these events will unfold and how the regulator will assess the filing on its merits, although the case thesis is sound and remains in-tact.
The 13D filing today, disclosed Punch and Associates’ increased ownership in the company to 12% from 11% when compared to the previous filing back in February.
Fintel platform research discloses the most recent transactions which illustrates the consistent growth in Punch & Associates’ ownership in the company over the past 10 years.
Article by Ben Ward, Fintel
