AlarmForce adopts 'poison pill' provision

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03/11/2010
AlarmForce, a super regional alarm company based in Toronto, with operations in North Carolina, Ohio, Georgia, and, as of Jan. 20 in Minnesota, announced late last week that its board of directors has approved the adoption of a Shareholder Protection Rights Plan, what's known as a "poison pill provision." The rights plan still has to be approved by shareholders within six months, and will be voted on at its annual meeting April 14. I haven't had a chance to talk to Joel Matlin, president of AlarmForce yet, but we're supposed to catch up later on today. Invented in the 80s as a device to prevent hostile takeovers, the poison pill provision is intended to make a hostile takeover way too expensive to carry out. It gives a company's shareholders the ability to buy the company's stock at a bargain price in the event that a hostile suitor comes calling. The AlarmForce press release says that "the company is not aware of any specific take-over bid for the company that has been made or is contemplated. The rights plan is not intended to and will not prevent a take-over of the company." My friends in finance tell me that the poison pill is typically adopted when the board gets nervous because the stock is undervalued, because they hear rumors about a possible takeover or they're actually concerned about a hostile takeover. Why don't all companies adopt this provision? Well, it's considered by many to be anti-competitive, to make a board and/or CEO a little too comfortable. One person told me that a number of Canadian companies have decided to do this recently. I'll be interested to learn the reasons for AlarmForce's decision to adopt a shareholder rights plan. AlarmForce's recent financial results look pretty nice. It's scheduled to release more financial results today after the market closes for its Q1 2010, which ended Jan. 31. In late January its 2009 year-end financial records showed "record growth." It's a very thinly traded stock that's trading today around 7.25, close to its 52-week high. Below are some highlights of its 2009 numbers compared to 2008: Revenue 34,133,000 29,942,000 +14% Gross profit 26,101,000 23,346,000 +12% Operating cash flow 6,467,000 6,812,000 -5% Operating cash flow excluding working capital 6,718,000 5,176,000 +30% Subscriber base 102,000 91,000 +12% EBITDA(x) 9,057,000 7,218,000 +25% Income before taxes 5,673,000 3,885,000 +46% Net income 3,780,000 2,610,000 +45% Net income per share 0.31 0.22 +41% Diluted Net income per share 0.31 0.22 +41%

Comments

These guys apparently bought 15% http://www.callistocapital.ca/ from the Ontario Teachers Pension Plan. That might make them a bit nervous.