DEFA14A: Outbrain Addresses Stockholder Lawsuits with Supplemental Disclosures Regarding Teads Acquisition

Outbrain is providing additional disclosures related to its acquisition of Teads to address stockholder lawsuits alleging deficiencies in the original proxy statement.

Summary

• Outbrain is acquiring Teads and has filed a definitive proxy statement with the SEC.
• Following the filing, Outbrain received eight demand letters and two lawsuits from purported stockholders alleging disclosure deficiencies in the proxy statement.
• The lawsuits claim the proxy statement is incomplete and misleading, seeking to halt the transaction or obtain damages.
• Outbrain denies the allegations but is providing supplemental disclosures to avoid delays and costs associated with litigation.
• The supplemental disclosures include details about the formation of an M&A committee, the financial analysis performed by Goldman Sachs, and adjustments to the financial forecasts.
• Goldman Sachs used discount rates ranging from 11.5% to 13.0% for discounted cash flow analysis of Teads, Outbrain, and the combined company.
• Terminal year EBITDA exit multiples ranged from 4.8x to 6.7x for Teads, 2.9x to 3.7x for Outbrain, and 4.5x to 5.7x for the combined company.
• The illustrative present value per share of common stock ranged from $3.16 to $4.88 for Outbrain standalone and $2.87 to $10.56 for the combined company.
• Goldman Sachs expects to receive a $10 million transaction fee, which may be reduced by up to $5 million due to other services provided.
• Goldman Sachs has also provided financial services to Altice International, the parent of Teads, receiving approximately $21 million in compensation over the past two years.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to the legal challenges and the need for supplemental disclosures, which suggest underlying issues with the initial transaction process. While the company is taking steps to address these issues, the situation introduces uncertainty and potential risks.

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 moving forward with the acquisition of Teads.

Negatives

• Outbrain is facing lawsuits from stockholders alleging disclosure deficiencies.
• The lawsuits could potentially delay or disrupt the acquisition of Teads.
• The company is incurring costs associated with litigation and supplemental disclosures.
• There is a risk that the transaction may not be consummated.

Risks

• The transaction may not be completed if conditions are not met or regulatory approvals are not obtained.
• The company may face unexpected costs, charges, or expenses related to the transaction.
• The integration of Teads operations may not be successful.
• The company may not realize the anticipated benefits and synergies of the transaction.
• The company's stock price may decline if the transaction is not consummated.
• The company faces risks related to advertising demand, economic conditions, and geopolitical concerns.
• The company's ability to innovate and compete effectively is subject to various risks.
• The company's operations are subject to political and regulatory risks in various markets.

Future Outlook

The document includes forward-looking statements regarding the potential benefits and risks of the transaction, but cautions that actual results may differ materially from those projected. 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 specifically denies all allegations in the Complaints and the Letters that any additional disclosure was or is required.

Industry Context

The acquisition of Teads is a significant move for Outbrain in the competitive digital advertising space. The supplemental disclosures and legal challenges highlight the scrutiny and complexity involved in large mergers and acquisitions within the tech industry.

Comparison to Industry Standards

• The discount rates used by Goldman Sachs (11.5% to 13.0%) are within the typical range for technology companies, but the specific rate depends on the company's risk profile and capital structure.
• The terminal year EBITDA multiples for Teads (4.8x to 6.7x) are comparable to other digital advertising companies, but the range reflects the uncertainty of future growth and synergies.
• The terminal year EBITDA multiples for Outbrain (2.9x to 3.7x) are lower than Teads, reflecting its standalone performance and growth prospects.
• 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 illustrative present value per share of common stock for Outbrain ($3.16 to $4.88) and the combined company ($2.87 to $10.56) are within the range of valuations for similar companies, but the wide range reflects the uncertainty of future performance and synergies.

Legal Proceedings

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

Related Party Transactions

• Goldman Sachs has provided financial services to both Outbrain and Altice International, the parent of Teads, creating potential conflicts of interest.
• An affiliate of Goldman Sachs holds a 4.9% direct investment interest in the general partner of Viola Ventures, a significant shareholder of Outbrain.

Stakeholder Impact

• Shareholders are impacted by the potential delay and uncertainty surrounding the transaction, as well as the legal challenges.
• Employees of both Outbrain and Teads are impacted by the potential merger and integration process.
• Customers and suppliers of both companies may be impacted by the changes resulting from the merger.
• Creditors are impacted by the financing arrangements for the transaction.

Next Steps

• Outbrain will continue to work towards completing the acquisition of Teads.
• The company will address the legal challenges and provide any necessary additional disclosures.
• The company will seek stockholder approval for the transaction.
• Outbrain will work to integrate Teads operations, technologies, and employees.

Key Dates

Keywords

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