DEFA14A: Cannae Holdings Responds to Carronade Capital, Highlights Value Creation Strategy

Cannae Holdings defends its strategic plan against Carronade Capital's proposals, emphasizing capital returns, portfolio rebalancing, and operational improvements.

Summary

• Cannae Holdings has responded to Carronade Capital's recent statement and director nomination notice.
• The company is focused on improving and monetizing its investment holdings, returning capital to shareholders, and reducing operational expenses.
• Since March 31, 2021, Cannae has returned $738 million to shareholders through share repurchases.
• In April 2024, Cannae repurchased 9,672,540 shares at $22.95 per share, totaling approximately $222 million.
• Cannae initiated a quarterly cash dividend of $0.12 per share in May 2024, returning approximately $7.6 million per quarter.
• The company has approximately 12.3 million shares remaining in its buyback authorization.
• Over the last 12 months, Cannae has raised approximately $470 million through sales of public portfolio company shares.
• Cannae sold 10 million Dun & Bradstreet (DNB) shares in March 2024 for $101 million and exited Dayforce after selling its final 4 million shares in 2024 for $264 million.
• Since Dayforce's IPO in 2018, Cannae has realized over $2.8 billion in share sales and distributions.
• In October 2024, Cannae acquired a 53% stake in the Watkins Company for $80 million.
• Cannae is working with DNB to achieve 5-7% organic growth and higher cash flow conversion.
• Cannae worked with Alight on the sale of its Professional Services segment and its Payroll & HCM Outsourcing businesses for approximately $1.2 billion in July 2024.
• AFC Bournemouth has improved dramatically since Cannae's acquisition, supporting revenue growth of 19%, to approximately $203 million, for the fiscal year ending June 30, 2024.
• Computer Services, Inc. has already returned $37 million, or 43%, of Cannae's investment in approximately one year.

Sentiment

Score: 7

Explanation: The document presents a confident defense of Cannae's strategy and highlights positive results, suggesting a moderately positive outlook. However, the need to respond to an activist investor introduces a degree of uncertainty.

Positives

• Cannae is actively returning capital to shareholders through buybacks and dividends.
• The company is rebalancing its portfolio towards private investments with cash flows.
• Cannae is working with portfolio companies to improve their operational performance.
• Cannae's investment in Black Knight Football is yielding strong results.
• Cannae's management and board are aligned with shareholder value, collectively owning 11% of outstanding common stock.
• Cannae has realized over $2.8 billion in share sales and distributions from Dayforce since its IPO in 2018, representing a greater than 5x return on invested capital.
• Cannae's investment in Computer Services, Inc. has already returned $37 million, or 43%, of Cannae's investment in approximately one year.

Risks

• The company faces risks associated with operating businesses outside its traditional areas of focus.
• Changes in economic, business, and political conditions could impact results.
• The Investment Company Act of 1940 poses certain risks.
• Cannae may face difficulties in finding suitable acquisition candidates or integrating acquisitions.
• Significant competition exists in the markets where Cannae's subsidiaries operate.
• The externalization of certain management functions to an external manager presents risks.

Future Outlook

Cannae remains optimistic about the outlook for its portfolio companies and their significant embedded value. The company is focused on returning capital to shareholders and will utilize capital from the sell-down of existing public portfolio company holdings to further buy back its stock.

Management Comments

• Our Board of Directors and management team remain dedicated to driving long-term value creation, and the efforts taken to execute the Company's strategic plan is a reflection of that commitment.
• We also remain focused on returning capital to shareholders and will utilize capital from the sell-down of existing public portfolio company holdings to further buy back our stock, given our continued commitment to reduce Cannae's share price discount to NAV.

Industry Context

Cannae's response to Carronade Capital reflects a broader trend of activist investors challenging corporate strategies. The company's focus on simplifying its portfolio and returning capital aligns with current market demands for efficiency and shareholder returns. The investment in JANA Partners also indicates a strategic move towards engaged investing, a popular approach in the current market environment.

Comparison to Industry Standards

• Cannae's strategy of returning capital to shareholders through buybacks and dividends is comparable to actions taken by companies like Pershing Square Capital Management and Icahn Enterprises.
• The focus on private investments with cash flows mirrors the approach of private equity firms such as Blackstone and KKR.
• The operational improvements at portfolio companies are similar to the value creation strategies employed by firms like 3G Capital.
• Cannae's investment in Black Knight Football and the multi-club model is similar to City Football Group's strategy.
• The 5x return on invested capital from Dayforce is a strong result, comparable to successful venture capital investments.

Stakeholder Impact

• Shareholders will be impacted by the company's capital return program and strategic decisions.
• Employees of Cannae and its portfolio companies may be affected by operational improvements and strategic transactions.
• Customers of Cannae's portfolio companies may experience changes in products and services as a result of operational improvements.

Next Steps

• Cannae's Board will present its recommendations with respect to the election of directors in the Company's definitive proxy statement, which will be filed with the SEC.
• Shareholders are encouraged to read the Company's definitive proxy statement when it becomes available.

Key Dates

Keywords

Cannae Holdings, Carronade Capital, shareholder value, capital return, portfolio rebalancing, operational performance, investments, buyback, dividends, Dun & Bradstreet, Dayforce, Watkins Company, AFC Bournemouth, Computer Services, Inc.