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Turtle Beach Reveals Auction Details Ahead of Board Battle

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Published: May 5th, 2022
The gaming headset maker says it hired Bank of America to assist with its review, after The Deal reported the retention and auction process last year.

Turtle Beach Corp. (HEAR) on Thursday, May 5, said it signed 10 nondisclosure agreements with potential bidders and had retained Bank of America Corp. (BAC) as a financial adviser to assist with a strategic review, as it faces a change-of-control director contest set for June 7.

The Deal reported in July, citing sources, that the gaming headset and accessory maker had hired Bank of America to conduct a strategic review.

The auction emerged under pressure from activist fund Donerail Group LP, which earlier this year launched a board takeover effort as part of an effort to target “governance, financial and strategic” issues.

On Thursday, White Plains, N.Y.-based Turtle Beach said it has engaged in banker-led proactive outreach processes to potential buyers on three separate occasions over the past five years, without a deal being struck.

Most recently it made the decision in spring 2021 to switch bankers and hire Bank of America to continue its efforts, and since then it contacted 29 potential buyers, signed 10 NDAs and held nine management meetings. The gaming maker said that “in several cases” it heard that potential buyers were unwilling to move forward because Turtle Beach relied too much on the cyclicality that comes with production of gaming console headsets.

Nevertheless, the company appears to be continuing with its strategic review, noting “there is no guarantee that discussions of this nature will result in a transaction.”

On April 25, Turtle Beach first indicated it has been considering options, saying in a release that it “remains open to any strategic alternatives that would maximize value for stockholders” and that it “will continue to engage in discussions with strategic acquirers and private equity firms with respect to potential strategic opportunities.”

The same day, Donerail issued a release raising concerns about Turtle Beach executive compensation and shareholder returns.

On Wednesday, Turtle Beach reported a first-quarter loss of $6.5 million, after reporting income of $8.8 million in the same period last year. It said it had a net loss of 39 cents a share, which beat analyst expectations of a net loss of 52 cents a share, according to FactSet Research Systems Inc. It also produced revenue of $47 million, above the consensus estimate of $43 million.

Los Angeles-based Donerail, led by managing partner William Wyatt, issued a letter in March saying that it had pulled a $36.50 a share bid it had disclosed in August, which it had sweetened from a previous $34.50 a share offer. The fund added it was now “committed to turning around the company in the public markets for the benefit of all shareholders.”

Editor’s note: The original version of this article, including individual advisers, was published earlier on The Deal’s premium subscription website. For access, log in to TheDeal.com or use the form below to request a free trial.

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