Rand Capital Corp.'s biggest shareholder is coming out against the Buffalo venture capital firm's plans to sell a majority stake to Kim and Terry Pegula.
User-Friendly Phone Book, which owns 23 percent of shares in the Buffalo-based firm, contends the deal's terms are bad for shareholders and declared it will vote against the sale.
The Pegulas, best known as the co-owners of the Bills and Sabres, plan to buy a 57 percent stake in Rand through their East Asset Management business.
Bruce Howard, CEO of User-Friendly Phone Book, detailed his objections in a letter to Allen F. "Pete" Grum, Rand's president and CEO.
Howard noted that Rand planned to sell control of the firm for $3 per share, or $25 million, "amounts that we believe are wholly inadequate and terms that we believe are extremely bad and unfair for shareholders."
Howard said the selling price of $3 represented about a 40 percent discount to Rand's net asset value as of the end of 2018, and that Rand's financial adviser performed analyses based on "outdated financial information."
"We are disappointed that Rand’s management and board have chosen to move forward with such an inadequate transaction," Howard wrote. "It appears to us that the Board abrogated its duty to Rand’s shareholders by agreeing to a deal that is favorable to East at the expense of the current shareholders."
Texas-based User-Friendly Phone Book sells digital media products to small businesses, and publishes some print telephone directories. The company invested in Rand last June. "We did so because we thought the shares seemed undervalued and looked like a good opportunity," Howard said in an interview.
Howard said the letter was designed to let Rand's board know where his company stood on the deal.
"We did not put the letter out to try to influence anybody," he said. "We feel now between the proxy [statement] and our letter, there's a good amount of public information available so other investors can just digest the information and come to their own conclusion as to how to vote."
Grum said Rand had received the letter "and we will be responding shortly to it."
Rand has not announced the date for the meeting at which the votes on the deal will be tallied.
Rand has been looking for ways to increase its returns for shareholders. When the firm announced the deal with East in January, Grum called it a "transformational event for Rand Capital."
"East's investment in Rand is a testament to the platform we have created, as well as their commitment to Buffalo and Western New York," Grum said then.
Rand in a regulatory filing explained how the deal with the Pegulas came about.
Starting in 2015 and 2016, Rand's board members began looking for ways to increase the company's share price and enhance shareholder value.
In late 2017, Rand officials received an inquiry from East. Rand and East officials met in January 2018 and talked broadly about the idea of working together on a possible deal. The two parties signed a non-disclosure agreement.
Rand officials in March 2018 traveled to Boca Raton, Fla., where the Pegulas are based, to talk some more about a potential deal. More contacts followed through the rest of the year, and in January 2019, about a year after the first in-person meeting, Rand and East signed a stock purchase agreement.
Rand's stock closed at $2.85 per share on Wednesday on Nasdaq.