Blackboard a Step Closer to Acquisition

• By Dian Schaffhauser
• 09/19/11

Blackboard's pending acquisition by a private equity firm has received shareholder approval. The company announced that at a special meeting held Sept. 16, 2011 shareholders representing 81 percent of outstanding shares approved the proposal put forth by Providence Equity Partners.

Pending regulatory approval, Providence will buy the education technology company in a deal valued at $1.64 billion. When the buyout was announced in July, the company stated that members of its executive team would remain in place after the deal was completed. Shareholders will receive $45 in cash for each share of Blackboard stock they possess. In the time that the buyout was announced, Blackboard's shares have traded between $40 and $45.

The acquisition journey for Blackboard has been a months-long endeavor. According to documents filed with the SEC, Blackboard CEO Michael Chasen met with three potential investors, identified as "Financial Sponsor" A, B, and C during a TED conference in Long Beach, CA. he also spoke with Providence by phone during the same event. During those meetings, he advised each party to submit a written proposal before a regularly scheduled March board meeting.

After follow-up sponsor meetings, Blackboard brought in Barclays Capital and an outside legal team to help the company maneuver through the sale process. Subsequently, a number of additional organizations came forward to participate in purchase-related activities. Eight parties eventually submitted "indications of interest." Offers ranged from $44 to $51 per share, a considerable premium over the closing stock price of $37.16 per share from April 18. That was the day before the company publicly acknowledged that it was evaluating offers from potential suitors. Several of those suitors informed Blackboard that they would need to partner with other companies in order to complete a deal.

Eventually, that short list was whittled down to a single best suitor, Providence. By June, the company had informed Providence that it would need to increase its specific offer of $45 per share in order to continue to move forward. Negotiations continued throughout that month, and eventually Blackboard gave Providence an exclusive agreement in anticipation of locking down a deal with the private equity firm. However, eleventh-hour deterioration in world financial market conditions and in Blackboard's own financial standing caused Providence to consider reducing its proposed purchase price.

Discussions between the Blackboard executive team, the external advisors, and Providence continued up to the evening of June 30 until they'd finally nailed down a final agreement. July 1, the following day, the deal was announced.

The same filings lay out executive "golden parachutes," how company executives--including Chasen and Chief Technical Officer Ray Henderson--would benefit if they were to be fired within 12 months of the change in ownership. Chasen would receive a total payout of $26 million in cash and equity and Henderson $5.4 million over the course of several years.

The same day the acquisition was first made public, a law firm specializing in class action suits put out a press release about its investigation into "possible breaches of fiduciary duty and other violations of law by the Board of Directors of Blackboard." According to law firm Weiss & Lurie, Blackboard was planning to sell itself for too little. Shortly after the announcement, Blackboard received word of the filing of three separate class action suits. A motion to consolidate two of those suits and another motion by the third firm to expedite discovery are both currently pending before a superior court in the District of Columbia. The Company responded that it "believes the allegations in the lawsuits are without merit and intends to vigorously defend these matters."

Blackboard and Providence reported they anticipate that the merger will be completed in the fourth quarter of 2011.