8-K: Outbrain Addresses Stockholder Lawsuits with Supplemental Disclosures Regarding Teads Acquisition

Outbrain is providing supplemental disclosures to its definitive proxy statement regarding the acquisition of Teads in response to stockholder lawsuits alleging disclosure deficiencies.

Summary

• Outbrain is acquiring Teads and has filed a definitive proxy statement with the SEC.
• Between October 9 and November 25, 2024, Outbrain received eight demand letters from purported stockholders alleging disclosure deficiencies in the proxy statement.
• Two lawsuits were filed on November 13 and 14, 2024, by purported stockholders making similar allegations.
• The lawsuits seek to enjoin the transaction, rescind it, or award damages and legal fees.
• Outbrain believes the allegations are without merit but is providing supplemental disclosures to avoid delays and costs.
• The supplemental disclosures include additional details about the formation of an M&A committee, the financial analysis performed by Goldman Sachs, and the calculation of EBIT in the financial forecasts.
• Goldman Sachs used discount rates ranging from 11.5% to 13.0% in its discounted cash flow analysis for Teads, Outbrain, and the combined company.
• The terminal year unlevered free cash flow for Teads was estimated at approximately $126 million to $210 million, for Outbrain at approximately $27 million, and for the combined company at approximately $220 million.
• Goldman Sachs estimated the terminal year EBITDA exit multiples for Teads to be between 4.8x to 6.7x, for Outbrain between 2.9x to 3.7x, and for the combined company between 4.5x to 5.7x.
• The implied present value per share of Outbrain common stock was estimated to be between $3.16 and $4.88, and for the combined company between $2.87 and $10.56.
• Goldman Sachs expects to receive a $10 million transaction fee upon consummation of the transaction, which may be reduced by up to $5 million due to a credit agreement.
• Outbrain may also pay Goldman Sachs an additional transaction fee of up to $2.5 million.
• Goldman Sachs has provided financial advisory and underwriting services to Altice International and its affiliates, receiving approximately $21 million in compensation during the two-year period ended August 1, 2024.
• The supplemental disclosures also clarify the calculation of EBIT for both Outbrain and the combined company, including adjustments for stock-based compensation.

Sentiment

Score: 5

Explanation: The document is neutral in tone, focusing on factual disclosures and legal responses. While the lawsuits are a negative, the company is taking proactive steps to address them. The financial analysis is presented without bias.

Positives

• Outbrain is proactively addressing stockholder concerns by providing supplemental disclosures.
• The company is taking steps to avoid delays and costs associated with litigation.
• The supplemental disclosures provide additional transparency regarding the transaction and financial analysis.
• The company is clarifying the role of the M&A committee and its lack of specific powers.
• The company is providing more detail on the financial analysis performed by Goldman Sachs, including discount rates and terminal values.

Negatives

• Stockholder lawsuits indicate potential concerns about the transparency of the Teads acquisition.
• The need for supplemental disclosures suggests that the initial proxy statement may have been incomplete.
• The lawsuits could potentially delay or adversely affect the transaction.
• The company is incurring costs and risks associated with litigation.
• The company is facing scrutiny from stockholders regarding the transaction.

Risks

• The transaction may be delayed or terminated if the conditions to the consummation are not satisfied.
• The company may face challenges in obtaining necessary regulatory approvals.
• The company may not be able to obtain the necessary debt financing to complete the transaction.
• The transaction may disrupt current plans and operations or divert management's attention.
• The company may face unexpected costs, charges, or expenses resulting from the transaction.
• The company's stock price may decline significantly if the transaction is not consummated.
• The company may face challenges in integrating Teads' operations, technologies, and employees.
• The company may not realize the anticipated benefits and synergies of the transaction.
• The company is exposed to various economic and geopolitical risks that could impact advertising demand.
• The company faces competition and may experience a loss of large media partners.

Future Outlook

The document contains forward-looking statements regarding the potential benefits and risks of the Teads acquisition, including the ability to realize synergies and the impact of various economic and geopolitical factors. The company does not assume any obligation to update these statements.

Management Comments

• Outbrain believes that the allegations asserted in the Complaints and the Letters are without merit and no additional disclosures are required under applicable law.
• Outbrain is voluntarily supplementing certain disclosures in the Definitive Proxy Statement to avoid the risk of delaying or adversely affecting the Transaction and to minimize the costs, risks and uncertainties inherent in litigation, and without admitting any liability or wrongdoing.

Industry Context

This announcement is relevant to the digital advertising industry, where consolidation and acquisitions are common. The acquisition of Teads by Outbrain is a significant move that could impact the competitive landscape. The legal challenges highlight the importance of transparency and disclosure in such transactions.

Comparison to Industry Standards

• The discount rates used by Goldman Sachs (11.5% to 13.0%) are within the typical range for discounted cash flow analysis in the technology and media sectors.
• The terminal year EBITDA multiples for Teads (4.8x to 6.7x) are comparable to those seen in similar transactions in the digital advertising space, although the range is quite wide.
• The terminal year EBITDA multiples for Outbrain (2.9x to 3.7x) are lower, reflecting its standalone business profile.
• The combined company's terminal year EBITDA multiples (4.5x to 5.7x) are in line with expectations for a larger, more diversified entity.
• The implied present value per share ranges are based on specific financial projections and assumptions, making direct comparisons to other companies challenging without detailed analysis of their respective situations.
• The fees paid to Goldman Sachs are typical for a transaction of this size and complexity, although the potential reduction due to the credit agreement is noteworthy.

Legal Proceedings

• Outbrain is facing two lawsuits from purported stockholders alleging disclosure deficiencies in the proxy statement.
• The lawsuits seek to enjoin the transaction, rescind it, or award damages and legal fees.

Related Party Transactions

• Goldman Sachs has provided financial advisory and underwriting services to Altice International and its affiliates, receiving approximately $21 million in compensation during the two-year period ended August 1, 2024.
• An affiliate of Goldman Sachs holds a 4.9% direct investment interest in the general partner of Viola Ventures, a significant shareholder of Outbrain.
• Affiliates of Goldman Sachs may have co-invested with Viola Ventures and its affiliates from time to time.

Stakeholder Impact

• Shareholders are impacted by the potential delay or termination of the transaction and the legal proceedings.
• Employees of both Outbrain and Teads are impacted by the uncertainty surrounding the transaction and the potential integration of the two companies.
• Customers and suppliers of both companies may be impacted by the potential changes resulting from the transaction.
• Creditors are impacted by the financing arrangements for the transaction.

Next Steps

• Outbrain will continue to seek stockholder approval for the transaction.
• Outbrain will work to obtain necessary regulatory approvals.
• Outbrain will continue to work towards securing financing for the transaction.
• Outbrain will continue to defend against the stockholder lawsuits.

Key Dates

Keywords

Outbrain, Teads, Acquisition, Proxy Statement, Stockholder Lawsuit, Merger, Goldman Sachs, Financial Analysis, Discounted Cash Flow, EBIT, M&A Committee, Supplemental Disclosures