September 19, 2017
Progress Software Comments on Letter from Praesidium Investment Management BEDFORD, Mass.--(BUSINESS WIRE)-- In response to a letter written to the Board of Directors of Progress Software (NASDAQ:PRGS) and made public by Praesidium Investment Management, the Company released the following statement:
We value Praesidiums ideas and perspectives, and always welcome input from our shareholders. However, Praesidiums mischaracterization of its engagement with the Company and our Board of Directors is disappointing. Moreover, Praesidium fails to acknowledge the successful execution of the strategy we announced earlier this year, which followed a comprehensive evaluation of the Companys offerings, customer needs and the rapidly evolving business landscape in which we compete. Our new leadership team has been executing against the strategic initiatives we set forth, which are driving results that recently surpassed our own expectations. Our active share repurchase program, and our dividend policy, further reflect our Boards focus on driving future value for all shareholders. We are confident in the merits and efficacy of our plan and believe it will continue to benefit all shareholders. We look forward to discussing more on our strategy when we announce our third quarter results on September 27, 2017.
Furthermore, the Company addressed the following points raised by Praesidium:
Progress strategy, led by the new highly-focused management team, has driven substantial shareholder value and will serve as the foundation for sustained long-term success. Our CEO Yogesh Gupta outlined our strategy to shareholders in January 2017. The cornerstone of our strategy is to support our large, long-standing installed customer base with the most complete platform for quickly and easily building modern mission-critical business applications. We have also committed to managing our business efficiently to deliver strong returns for shareholders. For example, in the first quarter of 2017, we undertook a major restructuring that resulted in a 20% reduction of headcount. This action, together with prudent expense management throughout the year, has allowed us to increase our operating margin from 28% through the end of the third fiscal quarter of 2016 to 34% for the same period in fiscal 2017.
Our strategy is producing tangible benefits for shareholders. Our preliminary third quarter results exceeded our guidance (as did our second quarter results). We returned more than $60 million in capital via share repurchases and dividends in the first three quarters of fiscal 2017. Our confidence in the direction of the business led the Board to increase the Companys quarterly dividend by 12% and set a new target payout ratio. On September 14, the day prior to Praesidiums filing of its letter, Progress shares traded at an all-time high, and our stock has traded up 33% since we named Mr. Gupta CEO - in our view, a recognition of the efficacy of our strategy.
Praesidiums acquisition idea is fundamentally inconsistent with our corporate strategy and not in the best interest of our shareholders. Praesidium suggested that we acquire a private-equity owned company that is a roll-up of various enterprise applications businesses. This target company provides vertically-focused ERP, CRM and supply chain applications spanning over 20 different industries.
Following thoughtful consideration of this idea, our Board concluded that it was not in the best interests of Progress or its shareholders. Most importantly, such a transaction would conflict with our mission to maintain and strengthen OpenEdge, which accounts for more than two-thirds of our revenue. Many of the target companys various applications compete directly with our largest independent software vendors (ISVs) who have built their applications on OpenEdge. Today, we are laser-focused on strengthening OpenEdge and enhancing our relationships with our key ISVs, both of which are vital to further driving profitability and free cash flow. To pursue a business combination that would threaten our most important product by alienating key ISVs and undermining the trust and commitment we share would, in our view, be imprudent, risky, and potentially destructive to shareholder value.
Our Board and management also had serious concerns about Praesidiums $1.2 billion enterprise valuation of the target company. We were aware of publicly-reported rumors that the owner of the target company had recently tried and failed to sell the business at even lower valuations. Furthermore, Praesidiums idea called for Progress to dilute its shareholders by issuing an additional 20% equity position, while also assuming the target companys debt, which would likely result in a substantial increase in our financial leverage. That, in turn, could potentially restrict our ability to continue our shareholder-friendly policy regarding share repurchases and dividends. Lastly, our Board was skeptical that the purported sellers believed there would be any real strategic or financial rationale for a combination given that they never contacted either Progress or its advisors directly.
Our Board, led by Chairman John R. Egan, is committed to acting in shareholders best interests and providing strong, independent oversight of the Company. Praesidiums September 15th letter mischaracterizes its interactions with our Board and management, our willingness to consider adding new directors and our commitment to responsible governance. We have added three new directors to our seven-member Board in the last year. We continually look for ways to strengthen our Board and enhance our governance practices. In fact, prior to Praesidiums release of its September 15 letter, we informed Praesidium that our Nominating & Corporate Governance Committee would like to speak directly with their proposed candidat
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September 19, 2017
