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  "documentTitle": "Houghton Mifflin Harcourt (HMHC)",
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  "authorName": "Engine Capital",
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  "presentationDate": "2022-03-22 00:00:00",
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  "notes": "The slide uses a bulleted list to summarize the investment thesis against the Veritas offer.",
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      "text": "Engine does not intend to tender its shares into the Veritas Capital (\"Veritas\") tender offer as it believes the $21 per share offer undervalues the company and is the result of a flawed process.",
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      "text": "Houghton Mifflin has fundamentally changed its business over the last couple of years, restructuring its cost structure and transitioning to a more digital organization with a higher percentage of recurring revenue. As this digital transition progresses, we believe HMHC will deserve a higher multiple over time",
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      "text": "The Veritas offer undervalues HMHC. It implies Veritas is buying HMHC for 7.6x 2024 unlevered free cash flow (UFCF) and 6.2x 2024 UFCF if the cumulative cash flow is included. This offer is the result of a flawed process conducted by Evercore. We believe Evercore is conflicted, and its fairness opinion contains numerous mistakes. This offer also represents a very small premium vs. where the stock would be after the announcement of strong Q4 results. Applying a 30% change of control premium to that stock price points to a fair transaction value of $25.35 per share. Recent comparable deals point to a $25 per share transaction value for HMHC",
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      "text": "A superior plan exists for shareholders. Houghton Mifflin should execute a Dutch tender offer between $21 and $22 per share for 19% of its shares outstanding. Assuming management's projections, Engine believes this plan could result in a share price around $42 at the end of 2024, implying a 26% 3-year IRR for remaining shareholders",
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      "text": "Under most circumstances, Veritas will earn outsized returns from this transaction. Under management's forecast, Veritas is set to earn a 5-year IRR between 31% and 37% at the $21 per share deal price. These outsized IRR are further evidence of the inappropriateness of the $21 Veritas offer and simply represent a transfer of value from HMHC shareholders to Veritas. Under management's forecast, Veritas can pay $26 per share and still earn a 5-year IRR between 18% and 23%",
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      "text": "Engine does not intend to tender its shares into the Veritas Capital (\"Veritas\") tender offer as it believes the $21 per share offer undervalues the company and is the result of a flawed process. The standalone recapitalization plan we suggest is far superior for shareholders",
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