TCR Acquisition LLC ('TCRA') Responds to Demonstrably False Assertions by Kaleyra About TCR’s Offer to Acquire Its Subsidiary, The Campaign Registry.

By Imperium Group

This is a public service response to factually incorrect assertions by Kaleyra made on August 24, 2022. Its purpose is to provide accurate information to shareholders, government regulators, and the general public.

Neither TCRA nor its advisors have engaged in an “unlawful campaign” to “coerce Kaleyra to sell The Campaign Registry to TCRA.” The Campaign Registry itself recruited on or about May 13, 2022 one of TCRA’s representatives, prior to TCRA’s formation, with the intention of having him identify a buyer for The Campaign Registry. A Non-Disclosure Agreement was requested and sent by The Campaign Registry which was executed. At no time did TCRA or any of its representatives or advisors endeavor to “coerce” Kaleyra into selling itself or any of its affiliates at a “low-ball price.” Neither TCRA nor any of its representatives or advisors made any false statement regarding Kaleyra or The Campaign Registry.

On or around June 9, 2022, in response to The Campaign Registry’s request to Giovanni Tarone that he find a buyer for it, a good faith “non-binding” offer was sent to Kaleyra offering to negotiate the purchase of Campaign Registry at a price to be negotiated and agreed on by the parties. There never was any “low-ball” price offer. Indeed, no specific purchase price was mentioned at all. Rather, TCRA’s non-binding Letter of Intent stated as follows: “Unless otherwise agreed to by both parties, and following completion of Due Diligence by Purchaser as defined herein, the Purchase Price for acquisition of 100% of the issued and outstanding common stock of TCRA shall be a multiple of net annual revenues, as agreed upon by Seller and Purchaser and put forth in the Stock Purchase Agreement, plus certain assumed debt or post-closing payment obligations set forth in the Stock Purchase Agreement.”

In addition to that good faith offer to negotiate a purchase price with Kaleyra according to widely accepted industry standards (a negotiated multiple of net annual revenues), TCRA offered additional financial incentives to Kaleyra in the form of “earn-out” compensation. Kaleryra’s mischaracterization of this as a “low-ball” price in its press release intentionally misstates material facts in an obvious attempt to intimidate TCRA and its advisors. TCRA stated its willingness to permit Kaleyra international use of the platform under licensing agreements without involving U.S. parties, thus ensuring compliance with U.S. ownership requirements for critical U.S. communications infrastructure.

For reasons Kaleyra may have to explain to appropriate regulatory authorities, it chose not to disclose this good-faith purchase offer to Kaleyra’s shareholders; and, at the same time, certain Kaleyra insiders proceeded to sell substantial amounts of shares following TCRA’s good faith offer. Kaleyra insiders apparently sold tens of thousands of dollars’ worth of shares on the day that Kaleyra received the offer to acquire Campaign Registry, and additional insider shares were sold during the following week.

Given the dramatic diminution in value of Kaleyra shares since GigCapital took that company public, it would seem that public shareholders should have been given the opportunity to know about a good faith offer to acquire The Campaign Registry and to consider the potential for a material increase in the value of their Kaleyra shares as a result of that offer. Indeed, not only did Kaleyra choose not to disclose this material event, Kaleyra determined not to respond at all to this first good faith offer.

In a subsequent communication to Kaleyra roughly one month later, given that Kaleyra had refused to respond in any way to TCRA’s good faith offer (notwithstanding Kaleyra management’s apparent disclosure of that information to Kaleyra insiders and “advisors”), TCRA submitted to Kaleyra a second non-binding offer to acquire The Campaign Registry. In this offer, TCRA made a specific purchase price proposal as a means of starting good faith negotiations as follows:  With technology sector multiples having declined significantly since the last quarter of 2021, TCR Acquisition’s proposed purchase price of $19,460,000 is based on a multiple of EBITDA in the high end of prevailing industry/investor ranges for technology startups. That proposed purchase price reflects roughly 25% of the total market capitalization for Kaleyra, returning substantial material value to Kaleyra shareholders. The multiplier is in the high end of prevailing industry/investor ranges for technology startups given the following assumptions: current market conditions, regulatory risks, low barriers to entry, absence of patents or unique IP rights, short-term nature of customer agreements and other risks that are well known to KLR officers, directors and shareholders. In addition, purchaser is willing to provide seller with valuable Intellectual Property licensing rights as part of the compensation.” A $20 million dollar offer, representing roughly 25% of the total market capitalization of Kaleyra, for a startup company that has been in business for only one year, at seven times earnings, plus additional compensation in the form of licensing revenues, cannot in good faith be characterized as a “low ball” offer.

It appears that public shareholders conspicuously viewed TCRA’s offer as material and highly valuable. In fact, on the day this offer was publicly disclosed (by TCRA, not by Kaleyra), intraday trading of Kaleyra shares spiked approximately 40% higher (opening at 2.23 that day, peaking at 3.10). When the NYSE ordered a halt in trading that day, Kaleyra shares were up in value by 12.5% and shares were trading at a level not seen over the entire previous year; trading volume went up that day by roughly 2000%. See https://seekingalpha.com/news/3856150-kaleyra-stock-jumps-on-tcr-acquisitions-offer-toacquire-campaign-registry-for-1946m. It appears that Kaleyra’s rejection of TCRA’s good faith offer caused the subsequent drop in share price value and the reduction in trading volume to pre-offer levels, where share price and trading volume remain at or below to this day.

Undaunted by Kaleyra’s inexplicable refusal to negotiate in good faith with TCRA, TCRA sent to the Kaleyra Board and CEO yet another offer to acquire The Campaign Registry on or around August 10th. In that offer, TCRA stated its willingness to consider Kaleyra’s apparent valuation of The Campaign Registry at $125 million subject to appropriate due diligence and verification of the methods by which Kaleyra arrived at that valuation. Statements regarding TCRA’s refusal to “improve the terms of its proposal” are false and apparently intended to intimidate TCRA and its advisors (and would also seem to be intentionally misleading to the public shareholders of Kaleyra).

Kaleyra has also misrepresented TCRA's concerns regarding foreign ownership of the Campaign Registry.  TCRA is aware of how the Campaign Registry operates and has never said that it has "control over the contents of messages sent to mobile phone users."  What the Campaign Registry does is much more fundamental and critically important to national security and consumer privacy.  The Campaign Registry decides who can initiate text message campaigns in the first place and it decides whether the general content of those text campaigns is appropriate or not.  It is easy for any mobile customer to understand why our federal government should be worried about foreigners being in ultimate control of these critical decisions concerning who can send billions of messages every year to the mobile phones of millions of U.S. consumers.  Of equal importance are the protocols and safeguards put in place (or not put in place) by the Campaign Registry to ensure that no spam, no fraudulent messages, and no inappropriate text messages are sent to U.S. consumer mobile phones. The federal government and U.S. consumers have every right to wonder just how vigilant foreign owners may be with regard to spam, fraud and inappropriate content sent to U.S. mobile customers since foreign standards might be entirely different from U.S. standards.

With regard to Chinese ownership of Kaleyra, there clearly seem to be verifiable facts found in the plain public meaning of Kaleyra’s public filings. As stated in Kaleyra’s SEC filings, at the time Kaleyra formally merged with GigCapital, Kaleyra was owned by a collection of non-U.S. citizens, including Hong Kong Permanent Shine Limited, a company formed under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China, Esse Effe S.p.A, a company with shares formed under the laws of Italy, and a number of other foreign individuals. On September 15, 2020 the General Office of the Central Committee of the Chinese Communist Party (CCP) issued the Opinion on Strengthening the United Front Work of the Private Economy in the New Era, calling on the nation’s United Front Work Departments (UFWDs) to increase CCP ideological work and influence in the private sector. China’s attempt to influence and control globally critical infrastructure is widely known. See https://www.csis.org/analysis/chinese-communist-party-targets-private-sector.

Any degree of ownership or involvement by Chinese entities, directly or indirectly, a U.S. entity that affects which political, commercial and not-for-profit campaigns can or cannot be allowed to send messages to everyone’s mobile phones should, to say the least, be of interest to any U.S. cellphone customer as well as to the U.S. government. In Kaleyra’s most recent Form 10-K Annual Report, for the Fiscal Year ending December 31, 2021, Kaleyra continued to report transactions that involved Chinese entities. One such statement from that most recent 10-K, is identified by Kaleyra as “Certain Relationships and Related Transactions, and Director Independence”:

“WHEREAS, Ipai Terry Hsiao, an individual residing in the Commonwealth of Virginia in his individual capacity (and not as Sellers’ Representative) (“Hsiao”), Kirk Tsai, an individual residing in the state of Maryland (“Tsai” and Hsiao, each a “Founder” and collectively, the “Founders”), IDG-Accel Growth Fund, L.P., a Cayman Islands limited partnership, IDG-Accel China Growth Fund-A, L.P., a Cayman Islands limited partnership, and IDG-Accel China Investors, L.P., a Cayman Islands limited partnership, (the “IDG Entities”, and together with the Founders, collectively, the “Principal Sellers”) together own a super-majority of the issued and outstanding Equity Interests of the Company (such interest the “Majority Shares”).”

Up until May of this year, it appears that IDG was one of the largest media companies in the world, owned by Chinese nationals and headquartered in Beijing, China. The public is entitled to know that Kaleyra, since the day it went public, and for extended periods of time since then, has been owned, in part, by Chinese investors. Moreover, the public is entitled to know that Kaleyra and its merger partner GigCapital have engaged in a series of transactions with China-based entities, such as IDG, which have been reported throughout Kaleyra’s own SEC filings. Given the recent vintage of these transactions with Chinese entities, it is perfectly reasonable to question to what extent China continues to play a role in Kaleyra and GigCapital’s financial matters.

Kaleyra’s suggestion that Kaleyra and The Campaign Registry are U.S.-based and -owned and managed in the U.S. seems without factual basis. In addition to the understanding that many, or most, of its executive officers are foreign nationals, in all of Kaleyra’s SEC filings up until February of 2022, Kaleyra reports its business and mailing address as follows: “VIA MARCO D’AVIANO, 2, 20131 MILANO MILAN L6 94303.” Italy itself has participated in China’s “Belt and Road” economic development program. Hence, TCRA’s views concerning publicly reported connections between China, Italy and Kaleyra seem reasonable and appropriate.

Kaleyra’s merger documents (8-K in November 2019) actually do mention China as one of their largest customers. See https://content.edgar-online.com/ExternalLink/EDGAR/0001193125-19-304431.html?hash=39c0f162852852f9823d254901a5e4d3241788408d93fe1af06bb7e5aba9302f&dest=D824512DEX24_HTM#D824512DEX24_HTM .  Given a series of FCC revocations against Chinese telecom service providers (https://www.cnet.com/tech/mobile/fcc-revokes-authorization-of-more-chinese-telecom-providers) (China Unicom, China Mobile, ComNet) and U.S. bans on wireless equipment manufactured in China (Huawei, etc.), it is hard to believe that CFIUS would not have been interested in these facts had Kaleyra disclosed them to federal authorities prior to this merger transaction. It is difficult to see how this set of facts would not have triggered mandatory CFIUS disclosure.

Because of these facts and others (such as Kaleyra’s ownership of other U.S. telecommunications companies at the time of its merger with GigCapital and subsequent public listing), it appears that Kaleyra’s merger with GigCapital should indeed have been reviewed by the U.S. CFIUS committee. At the time of GigCapital’s merger with Kaleyra, in their November 2019 8-K filing with the SEC, the companies reported that Kaleyra owned Buc Mobile, a U.S. telecommunications company that was generating at least $2 million in revenues at the time of the merger. Given Kaleyra’s foreign ownership, its ownership of Buc Mobile should also have been submitted for CFIUS review. During that review, all of Kaleyra’s U.S. telecommunications operations, including The Campaign Registry, would have been subject to CFIUS review. At a minimum, Kaleyra’s $200 million acquisition of mGage in early 2021 should have triggered CFIUS disclosure, which, we believe, would have led to a government review of all of Kaleyra’s affiliates and subsidiaries, including The Campaign Registry. As discussed, there seem to be many questions regarding Kaleyra’s foreign ownership, and because the technical services provided by The Campaign Registry appear to be so critical to U.S. national security and consumer privacy interests, a formal CFIUS investigation should be warranted.

The balance of Kaleyra’s specious allegations does not merit any consideration. It is obviously not in TCRA’s best financial interests to say or do anything that would cause The Campaign Registry’s customers to cancel their contracts.

Kaleyra has not even attempted to speculate at any purported damages caused to Kaleyra or Campaign Registry by TCRA - - because there are none. To the contrary, it seems clear that Kaleyra’s stock value increased the moment the public became aware of TCRA’s interest in The Campaign Registry.

Long before TCRA expressed any interest at all in The Campaign Registry, it appears those involved managed to cause the loss of hundreds of millions of dollars in Kaleyra shareholder equity. From an initial public offering price of $10.40 on November 26, 2019, with a market capitalization of approximately $600 million in March of 2021, to the day prior to any public announcement of TCRA’s interest in The Campaign Registry, share value of Kaleyra had deteriorated to $2 per share with a total market cap hovering around $80 million, along with annual losses and no apparent plans for turning around Kaleyra’s fortunes.

This is apparently a recurring theme with GigCapital, the entity that merged with and helped take Kaleyra public in the United States. As a “SPAC,” or “blank check” company, we understand that GigCapital and affiliated entities, and certain of their respective officers and directors are defendants in a number of shareholder lawsuits wherein the facts seem very similar to what has happened to Kaleyra’s public shareholders. In particular, GigCapital and its directors are defendants in two shareholder lawsuits involving mergers and IPOs initiated by GigCapital with target companies Lightning Systems (Case 1:21 civ. 00649, S.D.N.Y.) and Uphealth (Case No. 2021-821, DE Chancery).

While we assume that the defendants undoubtedly denied the plaintiff’s allegations there, the following quote from the Uphealth complaint seems to get to the crux of the problems now facing Kaleyra shareholders: “Gig2’s history is part of a disturbing trend of SPAC transactions in which financial conflicts of interest of sponsors and insiders override good corporate governance and the interests of SPAC stockholders. Like many SPAC transactions, which have triggered scrutiny from the SEC relating to financial projections and the reporting of warrants as equity rather than as liabilities, the Gig2 transaction failed to observe the most basic principle of Delaware corporate governance – namely, that a corporation’s governance structure should be designed to protect and promote the interests of public stockholders, not the financial interests of its insiders and controllers. … Although an abysmal deal for Gig2 public stockholders, the Mergers were a financial windfall for Katz, the Sponsor, inside director Dinu, and the purportedly independent directors. Even though Gig2’s stock price had dropped to $9.38 per share on June 9, 2021 (the day the Mergers were completed) and continued to spiral downward thereafter, Katz and the Sponsor, who had made a $4.8 million investment, held shares and warrants worth approximately $43 million on the day of the Mergers, which are still worth approximately $17.1 million as of September 22, 2021.”

To the extent that Kaleyra management has any real interest in increasing value to its public shareholders and improving the services offered by The Campaign Registry (TCRA has already committed to making capital investments and IT enhancements to The Campaign Registry, while honoring all customer contracts and employee agreements) TCRA remains willing to negotiate with Kaleyra in good faith.

Frederick ("Rick") M. Joyce, Esq., CEO
TCR Acquisition LLC