Maple Rock Capital Partners Releases Open Letter to the Board of Optiva Inc.

TORONTO–(BUSINESS WIRE)–Maple Rock Capital Partners Inc., which owns 22.1% of the subordinate voting shares of Optiva Inc. (TSX:OPT), released an open letter to Optiva’s board of directors in response to Optiva’s press release and associated analyst presentation of January 20, 2020.

The full text of the letter, which was also sent to the Toronto Stock Exchange (TSX), follows:

January 21, 2020

Optiva Inc.

2233 Argentia Rd, East Tower

Suite 302

Mississauga, ON

Canada L5N 2X7

Attn. Board of Directors

Maple Rock Capital Partners Inc., which owns 22.1% of the subordinate voting shares of Optiva Inc., is Optiva’s second largest shareholder since September 2017. We are excited about Optiva’s long-term value creation potential; however, we have grown concerned that Optiva will be unable to reach its full potential with an ESW Capital, LLC controlled board of directors and an ESW-affiliated CEO who seem intent on running the company as if it were a private entity, without appropriate checks and balances.

Governance Concerns and Entrenchment Tactics

Maple Rock has sought to work constructively with Optiva to see appropriate governance practices implemented which will strengthen the company. The ESW-controlled board has resisted engagement and now unfortunately appears to be resorting to entrenchment tactics. Indeed, Maple Rock believes that the recent announcement that the company is planning a USD$100 million financing is not driven by the need for additional capital, but rather is an entrenchment tactic to dilute shareholders – this is especially true given the fact that Optiva turned down Maple Rock’s two recent offers to provide capital.

As you know, Maple Rock has also attempted to meet with the deemed independent directors on multiple occasions, as well as ESW leaders, but has been repeatedly rebuffed. Maple Rock neither welcomes nor relishes the fact it must now make its concerns public in this manner, but as a result of the board’s responses and actions, particularly the company press release of January 20, 2020, it has been left with no choice – a public company must have a foundation of basic accountability and transparency at the board level.

As described above, on two recent occasions Maple Rock offered to provide the company with additional capital. First, in the form of a CDN$15 million loan and then in the form of a CDN$50 million equity investment at a significant premium to the market and contingent upon minority nomination rights and basic governance improvements. These improvements included: retaining a globally-recognized compensation consulting agency to review the CEO’s compensation in order to incentivize shareholder returns and address off-market levels relative to male peers; retaining a globally-recognized recruitment agency to recruit a full-time, independent and objective CFO; ensuring that non-ESW-related directors approve any share issuances or related party transactions; and that the use of proceeds be used to invest in the business, not to redeem ESW’s preferred shares. In both instances, these offers were rejected. The fact the company has made a public statement of an intention to raise USD$100 million with no indications on the sources of capital nor the method by which they intend to raise the funds suggests the board is not willing to entertain obvious governance improvements and instead is focused on further entrenching themselves and ESW.

Optiva Lacks Appropriate Checks and Balances on Board and Management

Optiva’s board is presently made up of seven directors, four of whom are selected by ESW as the only preferred shareholder. Additionally, two of the three non-preferred directors (labelled as “independent directors”) are closely associated with ESW who, in addition to being the only preferred shareholder, apparently owns 27.8% of the subordinate voting shares. Maple Rock is very concerned that the deemed independent directors are not sufficiently objective or free from conflicts in order to effectively represent the interests of all shareholders. True independence is incredibly important, especially given the three independent directors have a critical role in overseeing transactions that involve and potentially benefit ESW.

We were encouraged, in mid-2018, when Optiva hired a new, independent, CFO that had no prior relationship with the CEO or ESW. However, we were quickly disappointed when that individual abruptly resigned in January 2019, and to date has not been replaced. Despite our encouragement and engagement and the urgency needed to fill the role, the company seems completely uninterested in hiring a permanent independent CFO and, to our knowledge, has not even engaged a headhunting firm. As a result, the company has been operating without the necessary and appropriate checks and balances a professional CFO would provide.

Financially Questionable Information Provided to the Market

In addition to these governance issues, Maple Rock is very concerned that the company has issued an analyst presentation with the apparent goal of making the company look weaker than it is. For example:

– The company’s enterprise value as calculated in its presentation is questionable, as it includes capitalization without cash on balance sheet or the cash proceeds from a warrants exercise (while including warrants as shares).

– The company includes a slide titled “On-Premise Melting Ice Cube” which compares the on-premise software business to “global warming” and paints a substantially more draconian revenue outlook than recently discussed by the CEO in November on the company’s earnings call, while cautioning “this is not a forecast”.

– The company has sought to use all cash flows from existing operations to invest into product innovation. This product investment is expensed instead of capitalized, depressing current reported earnings power and cash flow from operations.

– The company is seeking to aggressively invest in cloud products but has offered no expectations for return on investment or when cloud should start to contribute meaningfully to revenue growth. Revenue is discussed in the presentation as if “no cloud growth, just a declining on-premise business” at the same time that the company is aggressively investing into cloud growth.

We question why the company would issue an analyst presentation that relies on non-standard financial definitions and accounting practices which confusingly attempts to make the company looks less profitable than it is.

Maple Rock Actions on Behalf of All Shareholders

In light of yesterday’s announcement by the company, Maple Rock has asked the TSX to carefully review any request by Optiva to approve a financing or other transaction in the near term. We are very concerned about inappropriate entrenchment tactics being employed.

We are also urging the company to, in the interest of good governance, replace the deemed independent non-preferred directors with ties to ESW with directors that are truly independent, sufficiently objective and free from conflicts.

Maple Rock remains willing to engage directly and constructively with the board to ensure Optiva delivers on the significant promise we see.


Xavier Majic

Chief Investment Officer


Kingsdale Advisors is acting as strategic shareholder and communications advisor and Norton Rose Fulbright Canada LLP is acting as legal advisor to Maple Rock Capital Partners Inc.

Additional Information

The information contained or referenced herein is for information purposes only in order to provide the views of Maple Rock and the matters which Maple Rock believes to be of concern to shareholders described herein. The information is not tailored to specific investment objections, the financial situations, suitability, or particular need of any specific person(s) who may receive the information, and should not be taken as advice in considering the merits of any investment decision. The views expressed herein represent the views and opinions of Maple Rock, whose opinions may change at any time and which are based on analyses of Maple Rock and its advisors.

For Further Information:


Kingsdale Advisors

Ian Robertson

Executive Vice President Communication Strategy

Office: 416-867-2333

Cell: 647-621-2646

[email protected]