October 09, 2012 - 1:28pm EST by
2012 2013
Price: 17.60 EPS $0.00 $0.00
Shares Out. (in M): 65 P/E 0.0x 0.0x
Market Cap (in $M): 1,100 P/FCF 0.0x 0.0x
Net Debt (in $M): -350 EBIT 0 0
TEV ($): 0 TEV/EBIT 0.0x 0.0x

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  • Starboard
  • Software
  • Activists involved


Progress Software (Ticker PRGS):


Shares Outstanding: ~65mm


Stock Price: $17.60


Market Capitalization: ~$1.1bb


Enterprise Value: ~$800mm


Short Interest: ~3%


Situation Type:


Event-Driven: Turnaround or Sale of the Company


Situation Overview:

On October 8, 2012, CEO of PRGS Jay Bhatt resigned his post effective December 7th to take a new role at a growth business to be disclosed later this week. Jay originally took on the task of turning around PRGS and fending off activist shareholder Starboard. PRGS shares have fallen from $21.48 to $17.60 or ~18%.


In April 2012, Jay introduced a series of steps to create shareholder value including:

  • A comprehensive cost reduction effort
  • Re-investment in specific business initiatives
  • Return of capital via share repurchase plans ($350mm)
  • Various divestments of non-core assets
  • Net/Net: strive for 5-7% growth and 25% operating margins


Entry Catalyst:

CEO resignation; reduction in revenue


Event Path:

I believe Starboard who remains a material shareholder will be updating their 13D status imminently and increasing their stake above 7.6%, and will be awarded several board of directors seats, and the 'keys' to the business. They will continue to effectuate change, and run a dual track of hiring additional internal talent including a new Chief Executive Officer, continue to retain investment banking services to complete the disposal program, but more importantly to consider a sale of the entire company. The main focus beyond a turnaround will be a sale to a strategic buyer such as IBM, CA, Oracle, but the company will also evaluate a sale to private equity firms (probably with software portfolio companies and existing management). In addition, I believe PRGS will initiate a share repurchase plan that will go uninterrupted during this turnaround process by instituting a 10b-5 share repurchase program with a reputable investment bank.


Event Duration: ~180 days


Day 0-30: Starboard takes effective control of the Board of Director strategic alternative path. Institute 10b5 share repurchase plan that will remain uninterrupted by strategic alternatives process.


Day 30-60: Board of Directors hires a reputable investment bank to evaluate various alternatives including sale of the company. The board will also engage a tier 1 executive search firm.


Day 60-120: Data room established for buyer due diligence. Narrow down executive search to top candidates.


Day 120-180: Bids received and sale of the company or new executive appointed, share repurchase plan extended and increased or effectuated via Dutch Tender.




Not a lot has changed since Starboard presented their plans to the board. Here is the link to their valuation assessment.



Exit Catalyst:


1. Restructuring of the business and return of capital.


2. Sale of the company


Downside Protection:


The business is currently in a state of flux, but downside is fairly defined at the current share price, which includes the value OpenEdge and the existing cash on the balance sheet. At 4x EBITDA there is very limited downside from the current equity value


Upside: This is difficult to determine considering the perception is that after Starboard takes over the board that this business will be run by an investment fund. I believe the upside valuation range is wide..$24-$32/share depending on if the buyer is strategic or financial. However, minimum upside is 37%. In the event a sale of the business does not transpire and the asset disposal program is completed, float shrinks, the downside remains limited. I believe the best upside is a continuation of the restructuring plan that is already in place and bring in a new leader to complete the change. But I do believe this business will get sold in lieu of a completed restructuring.


Net/Net: downside is minimal / upside of $6.5 – $14.50 or 37% - 82%


Exhibit (proxy and 13D filings for reference):



I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.


Dutch Tender
10b Share Repurchase Plan
Completion of Disposal plan
Sale of the company to strategic or financial buyer
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