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Report on Business Callidus shareholders urged to accept Braslyn go-private bid or risk losing out on stock

Callidus Capital Corp.’s second-largest shareholder has agreed to take the struggling alternative lender private at a fraction of what the shares were worth when financier Newton Glassman took it public five years ago.

In a statement, Callidus’s special committee of directors examining the deal said Braslyn Ltd.'s offer for the minority shares, worth about $5.3-million, could be the only option left to stave off insolvency by next year. It urged minority investors to accept the deal, warning that they could be left holding shares with no value due to Callidus’s high debt obligations and worsening financial position if they do not.

Under the deal, Bahamas-based Braslyn will offer 75 cents for each share not owned by Mr. Glassman’s Catalyst Capital Group Inc., majority owner of Callidus. The shares closed at 41 cents on Thursday on the Toronto Stock Exchange. Late last year, Braslyn, owned by Tavistock Group founder Joe Lewis, proposed to buy out the minority for $2 a share, but did not make a formal bid.

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Related: Callidus Capital says Braslyn agrees to buy minority shareholding to go private

Since then, Toronto-based Callidus has reported losses owing to under-performing loans and weak financial results at companies it acquired when their owners defaulted on their debt. This week, it reported a second-quarter net loss of $79.7-million, compared with a year-earlier loss of $40.8-million.

The outcome will be a bitter pill for investors who had hoped for a privatization deal that Mr. Glassman, Callidus’s executive chairman, had previously said could be worth at $18-$22 a share, based on a 2017 valuation by National Bank Financial. Callidus began a search for suitors in September, 2016, but no other would-be buyers emerged.

Since then, the company became embroiled in an epic legal battle against short sellers, former borrowers and reporters from The Wall Street Journal, who Mr. Glassman has accused of conspiring to make and publicize false whistle-blower claims to the Ontario Securities Commission regarding the company’s accounting. The legal battle, which has involved some of Bay Street’s most prominent personalities, has only served to cloud investors’ view of Callidus’s performance.

The defendants, including Greg Boland, founder of West Face Capital Inc. and a rival in numerous other court disputes with Mr. Glassman, have denied the charges. Mr. Boland has countersued.

At Braslyn’s offer price, Callidus shares will have fallen nearly 95 per cent from the company’s initial public offering in 20. Braslyn, whose founder is the owner of British soccer’s Tottenham Hotspur as well as one of the world’s most valuable private art collections, has a 14.5-per-cent stake in Callidus. Catalyst has a 73-per-cent interest. Jason Callender, a representative for Mr. Lewis, declined to comment when reached by phone.

Officials with Callidus and Catalyst had no comment on Friday, spokesman Dan Gagnier said.

Catalyst’s funds have provided debt financing and guarantees. This year, Catalyst extended a US$250-million bridge loan to Callidus, among other assistance. That lifeline appears to be growing short.

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The board committee noted in the statement that Callidus owes Catalyst $421-million, and it cannot repay the debt. Catalyst informed the directors that it will not grant any extensions beyond September, 2020, if the Braslyn deal falls through, the committee said.

“Inevitably, that would lead to the insolvency and/or liquidation of the company,” it said. “In such circumstances, the special committee considers it unlikely that the Callidus shareholders (including Braslyn) would receive any value for their common shares.”

As part of the deal, Braslyn would be entitled to 15 per cent of the proceeds of asset sales Callidus makes in the year after the transaction is completed. Braslyn’s bid requires the approval of a majority of the minority shareholders at a meeting, as well as court approval. It would get a break fee of $2-million in certain circumstances if the deal does not close.

Callidus shares rose 75 per cent to 72 cents on Friday.

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