ACI looks to crash S1’s wedding

Contact: Brenon Daly

Just a month after announcing its largest-ever acquisition, S1 Corp has found itself unexpectedly (and perhaps unwelcomely) on the other end of a potential transaction. The payments software maker agreed in late June to acquire Fundtech in a stock swap valued at $326m. On Tuesday, ACI Worldwide sought to play the spoiler in that planned marriage, pitching an unsolicited offer to S1 that it says holds ‘significant upside’ compared to the proposed Fundtech deal.

ACI is offering $9.50 in cash and stock for each share of S1, for total consideration of $540m. The bear hug represents a premium of 33% over S1’s previous closing price and the highest price for the stock since late 2004. ACI says it has the financing lined up and could close the deal by the end of the year. Although S1 hasn’t responded to ACI’s proposal, its stock traded in line with the offer, changing hands on Tuesday afternoon at about $9.35.

In some ways, the current interest in S1 is about a half-decade overdue. We speculated in September 2006 that the company was likely on its way out. At that time, S1 was busy unwinding some misguided deals that it had inked years earlier as part of a larger ‘strategic review.’ (The divestitures came at a time when activist hedge fund Ramius Capital was the company’s largest shareholder.) Had it made its move then, ACI could have picked up the company on the cheap: S1 was trading at half the level of ACI’s current bid.

Not pretty, but it’s done at Novell

Contact: Brenon Daly

After holding out for more than eight months, Novell finally accepted on Monday a $2.2bn buyout offer from private equity-backed Attachmate. From the outside, it looks like a case where the buyer – or maybe more accurately, the hedge fund that put the company in play – simply wore down Novell. Under terms, Attachmate will hand over $6.10 in cash per share, or roughly $2.2bn, for Novell.

Yet if we step back and look at the offer, we can’t help but notice that the company is now embracing a bid that only values it slightly more than the original offer that put it in play. For the record, Novell’s board said three weeks after receiving the unsolicited bid from gadfly investor Elliott Associates that the offer of $5.75 for each share ‘undervalues’ the company and its prospects.

Apparently, Elliott’s opening bid wasn’t all that lowball because the company is selling for just 6% more than the offer that ‘undervalued’ it. We would also mention that Novell traded above the $6.10 bid several times over the summer, albeit on pure speculation. (JP Morgan Securities advised Novell, while Credit Suisse Securities and RBC Capital Markets worked for Attachmate.) The deal is expected to close in the first quarter of 2011, pending shareholder approval.

To be fair, the fact that Novell’s board got shareholders even a slight bump above the original offer should be viewed as a sell-side accomplishment. After all, Novell is a hoary, mixed-bag of businesses, with each unit attracting specific suitors. All of that made for an undoubtedly complicated process, with multiple permutations on bidders and bidding teams, as we understand it. (Companies we heard that may have taken a serious look at some point at Novell – or at least some of its businesses – include VMware and Oracle, among others.) Indeed, as part of the transaction, Microsoft will be acquiring a sprawling portfolio of 882 patents from Novell for $450m.

And beyond all of the complications around matchmaking is the fundamental fact that Novell just isn’t that attractive, regardless of whatever business we look at inside the company. Each component of its revenue (license, maintenance/subscription, services) has dropped so far this year, which is part of the reason why Novell has come up short of Wall Street expectations every quarter this year. Overall, sales have dropped 6% in 2010, and current projections call for Novell’s revenue to decline next year, too. So as we look at it, the board probably did a fair job to get Novell valued at $1.2bn (net of cash), which works out to basically 1.5 times sales. Novell shareholders will now have their say on the outcome of the more than eight-month process.

North of the border disorder

Contact: Brenon Daly

The ‘storm’ caused by Research in Motion’s ‘bold’ play for Certicom looks likely to linger a bit longer. The Blackberry maker originally launched its unsolicited offer for Certicom a month ago, but the cryptography vendor has nixed it. (Certicom also lined up TD Securities to help it fend off the unwanted attention from the fellow Canadian company.) RIM’s bid, which values Certicom at some $52m, was originally slated to expire next week but has been extended through the end of the month.

With this unsolicited offer, RIM joins a growing list of big-name tech firms that have used this once-taboo M&A strategy. Over the past year, firms using unsolicited offers include Microsoft, EMC, Electronic Arts and Cadence Design Systems, among others. If RIM does manage to secure Certicom, it will mark the company’s second recent deal, after some two years out of the market.

Recent Research in Motion deals

Date Target Deal value Rationale
December 2008 Chalk Media $18.4m Mobile content
December 2008 (announced) Certicom $53.2m Encryption
November 2006 Epoch Integration Not disclosed Network management
March 2006 Ascendent Systems $14m* VoIP networking

Source: The 451 M&A KnowledgeBase *451 Group estimate

Still hot for Sourcefire?

My security colleagues, writing on their Plausible Deniability blog, recently took a look at widening spread between Barracuda Networks’ unsolicited bid and Sourcefire’s current stock price. They noted that although Sourcefire shares briefly nosed above the $8.25 bid floated by privately held Barracuda, the shares have basically retreated back to the level they were before Dean Drako came calling in late May. Well, the spread turned into a gulf Monday, as Sourcefire stock dropped a buck to just $5.97, the lowest level since the unsolicited bid surfaced. For any arb out there, we would note that’s a 27% discount to Barracuda’s bid.