Today, Trillium Capital LLC released the following open letter to the shareholders of Conduent Incorporated

BOSTON, May 15, 2020 /PRNewswire/ --

Dear Fellow Shareholders of Conduent:

Trillium Capital LLC and its principals own 2,400,000 common shares of Conduent Incorporated (NASDAQ: CNDT) ("Conduent or the Company"). We may not be largest shareholder, but we are perhaps one of the most concerned.  We believe that the Board of Directors of Conduent (the "Board") has not yet taken advantage of several obvious opportunities to increase shareholder value and has yet not fully exercised its fiduciary duties to maximize Conduent's shareholder value. 

The share price of Conduent has declined by 80% in the past year since the current Chief Executive Officer, Clifford Skelton, joined the Company in July 2019 as COO.  Prior to being appointed COO and then CEO of Conduent, Mr. Skelton's most prominent corporate position seems to have been the head of a division at Fiserv and its CIO.  We do not believe that Mr. Skelton has the crisis management and turn around skills or the necessary experience to substantially improve the financial performance of Conduent. Nor does he seem to have the skills to lead a successful restructuring or the M&A skills to separate the business segments, or to lead a successful sale or a merger of Conduent, any of which we believe might significantly increase shareholder value.

We believe that the Board has not yet sufficiently exercised its fiduciary duties to its shareholders by requiring that management undertake initiatives to significantly increase shareholder value above the $1.78 stock price as of the close of business on May 14, 2020. 

The Board and management announced a Strategic Review Process in the fall of 2019 and then terminated it in February 2020.  We understand the Company engaged the well-known investment banking firm, Evercore, to conduct this Strategic Review Process and to approach potential buyers for its Transportation Services Business.  We believe that Conduent has yet not adequately informed shareholders of the results of that process and any possible bids for the Transportation Services Business.  We believe that under the right circumstances the Transportation Services Business could be worth between $600 million and $700 million.

Conduent currently has a $1.6 billion enterprise value based on the closing stock price on May 14, 2020 of $1.78 per share and has a net debt position of $1.26 billion as of its most recent earnings date of March 31, 2020.  Using the Trailing Twelve Months EBITDA, this equates to only a 3.5X multiple to enterprise value. We believe that there is significantly more value in Conduent in the sum of the parts value rather than being operated as a conglomerate of dissimilar businesses (Government, Transportation and Commercial), where those businesses do not appear to us to have very much in common.  We believe much more value could be returned to shareholders if those businesses were separated.  Although more analysis is needed, based on the public information, we believe it may be possible to mitigate the tax consequences in separating the businesses through spin-offs using a Reverse Morris Trust transaction with any number of comparable companies to each business segment.

We highlight the following for the consideration of Conduent's shareholders:

Value of the Sum of the Parts 

Our analysis of the sum of the parts of Conduent's three separate business segments (Government, Transportation and Commercial) indicates that the Enterprise Value of Conduent might be as high as $2.2 billion based upon FY 2021 estimates from research analyst reports, after deducting net debt of $1.26 billion as of March 31, 2020 (before income taxes and transaction costs) as compared to the Enterprise Value as of May 14, 2020 of $1.6 billion. This alone might equate to approximately a $4.50 per share stock price based upon FY 2021 EBITDA estimates or an increase of 150%.

We believe that if M&A multiples were applied to each of the stand-alone business units (such as the 3.5X revenue multiple that DXC sold its similar Government Services Business to Veritas for $5 billion in cash as was announced in early March 2020) or a typical exit M&A EBITDA multiple was applied to the other business segments that the Enterprise Value of sum of the parts of Conduent could be much higher than our above estimates.

Our analysis indicates that if Conduent were more effectively led by an experienced turn around and M&A CEO, the top and bottom line financial results were grown and improved, Corporate and Unallocated Costs were cut by at least $100 million and recent typical M&A market multiples were applied, Conduent could be worth almost $5 billion in Enterprise Value, after deducting its net debt position of $1.26 billion as of March 31, 2020, (before income taxes, transaction and restructuring costs) based on FY 2021 research analyst estimates. 

We do not understand why the Conduent Board and its CEO have not yet acted more aggressively and more quickly to address the Company's dramatically deteriorating performance.  We believe the Company should be split into at least two separate public companies, Government and Commercial (including Transportation Services), with their own separate and lower cost structures.  Those businesses might then be much more attractive candidates for to attract a strategic partner.

Option of Last Resort to Unlock Shareholder Value.

If the Board decides not to pursue our recommendations or quickly put forward a comprehensive plan to increase shareholder value, then we believe that the Board has a responsibility to put Conduent, in its entirety, up for sale. 

The Conduent shareholders should ask themselves these obvious questions. 

WHY HAS THE CONDUENT BOARD ALLOWED THIS SITUATION TO CONTINUE SINCE IT HAS RESULTED IN AN 80% DECLINE IN SHAREHOLDER VALUE OVER THE PAST YEAR WITHOUT YET TAKING REASONABLE ACTIONS TO INCREASE SHAREHOLDER VALUE?

WHY DOES MR. SKELTON CONTINUE TO BE THE CEO OF CONDUENT?  HE HAS OVERSEEN A CONTINUOUS REDUCTION IN REVENUES AND EARNINGS, WHICH HAS RESULTED IN A SIGNIFICANT LOSS OF SHAREHOLDER VALUE, WHILE NOT YET ACTING UPON ANY POTENTIAL OPPORTUNITIES TO INCREASE SHAREHOLDER VALUE AND ONLY OFFERING VAGUE PLANS FOR THE FUTURE?

Sincerely,

R. Scott Murray
Managing Partner
Trillium Capital LLC.
[email protected]

About Trillium Capital LLC
Trillium Capital LLC provides consulting services and is an investment company that invests in early stage technology companies for the new economy and in publicly traded companies. Our activities included: advising private equity firms regarding technology, software and service transactions, analyzed opportunities and provided capital to distressed businesses, investing in strategic assets, maintained a robust professional network filled with exceptional talent and loyal clients, and guided both private and public companies through effective crisis management technology and turnaround strategies.

SPECIAL NOTE REGARDING THIS LETTER:

THIS LETTER CONTAINS OUR CURRENT VIEWS ON THE VALUE OF SECURITIES CONDUENT INCORPORATED AND CERTAIN ACTIONS THAT THE BOARD OF DIRECTORS OF CONDUENT MIGHT TAKE TO ENHANCE THE VALUE OF ITS SECURITIES. OUR VIEWS ARE BASED ON OUR OWN ANALYSES OF PUBLICLY AVAILABLE INFORMATION AND ASSUMPTIONS WE BELIEVE TO BE REASONABLE. THERE CAN BE NO ASSURANCE THAT THE INFORMATION WE CONSIDERED AND ANALYZED IS ACCURATE OR COMPLETE. SIMILARLY, THERE CAN BE NO ASSURANCE THAT OUR ASSUMPTIONS ARE CORRECT. THE ACTUAL PERFORMANCE AND RESULTS OF CONDUENT MAY DIFFER MATERIALLY FROM OUR ASSUMPTIONS AND ANALYSES.

THIS LETTER ALSO REFERENCES THE SIZE OF OUR RESPECTIVE CURRENT HOLDINGS OF CONDUENT. OUR VIEWS AND OUR HOLDINGS COULD CHANGE AT ANY TIME. WE MAY SELL ANY OR ALL OF OUR HOLDINGS OR INCREASE OUR HOLDINGS BY PURCHASING ADDITIONAL SECURITIES. WE MAY TAKE ANY OF THESE OR OTHER ACTIONS REGARDING CONDUENT WITHOUT UPDATING THIS LETTER OR PROVIDING ANY NOTICE WHATSOEVER OF ANY SUCH CHANGES (EXCEPT AS OTHERWISE REQUIRED BY LAW).

FORWARD-LOOKING STATEMENTS:

Certain statements contained in this letter are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. The current Covid-19 Virus Crisis may and continue to have a material adverse effect on the Company's financial results and its stock price.  Forward-looking statements are not a guarantee of future performance or activities and are subject to many risks and uncertainties. Due to such risks and uncertainties, actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Forward-looking statements can be identified by the use of the future tense or other forward-looking words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "should," "may," "will," "objective," "projection," "forecast," "management believes," "continue," "strategy," "position" or the negative of those terms or other variations of them or by comparable terminology. 

Important factors that could cause actual results to differ materially from the expectations set forth in this letter include, among other things, the factors identified in the public filings, press releases and transcript comments by Conduent. Such forward-looking statements should therefore be construed in light of such factors, and the we are under no obligation, and expressly disclaim any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

SOURCE Trillium Capital LLC

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