Category: unsolicited deals

Expensive independence

Brenon Daly

It was a rough week all around for stocks (once again), but the decline was especially galling for holders of shares in companies that had earlier attracted unsolicited offers. Two big would-be targets, neither of which is still being hunted, were in the news again this week: Yahoo and SanDisk. And the news wasn’t good.

Jerry Yang and the rest of the Yahoo-ers (at least the ones who survived the 10% job cuts) revealed that business was a bit soft in the third quarter. Sales were stagnant, and the search engine earned only one-third the amount that it did during the same period last year. So much for their go-it-alone plan. You’ll recall that Yahoo repeatedly brushed aside a $31-per-share offer from Microsoft earlier this year. The stock closed Thursday at $12.65, near its lowest level since mid-2003.

Meanwhile, SanDisk shares also hit a five-and-half-year low after Samsung on Tuesday pulled its $5.85bn unsolicited offer for the flash memory card maker. Samsung aired its offer of $26 for each SanDisk share in September, after several months of unsuccessful overtures. SanDisk shares closed Thursday at $9.14. That means the rejection by SanDisk’s board has cost shareholders more than the rejection by Yahoo’s much-pilloried board, at least on a relative basis. SanDisk shares are changing hands at about 65% below Samsung’s offer, while Yahoo stock is trading ‘only’ 59% below Microsoft’s bid.

Hedge fund goes tender on Epicor

Brenon Daly

The largest shareholder of Epicor on Wednesday took its unsolicited bid directly to shareholders, just one day after the ERP vendor nixed the offer. Two weeks ago, hedge fund Elliott Associates offered $9.50 for each share of Epicor, giving the proposed transaction a $566m equity value and $814m enterprise value. (Elliott says the all-cash bid is not conditional on financing.) Epicor officially shot down the proposal, asked shareholders to wait for its board to review the proposal. The tender offer is set to expire in a month, but can be extended. Elliott, which began buying the stock in June, owns 10% of the equity, plus a slug of convertible notes. Epicor shares closed Wednesday up 4 cents at $6.84.

Epicor: Thanks, but no thanks

Brenon Daly

Epicor has shot down an unsolicited offer from a hedge fund, confirming a move that the market had been expecting in the wake of the credit market collapse. The ERP vendor, which is being advised by UBS, told Elliott Associates that it wasn’t interested in the two-week-old bid of $9.50 for each share of Epicor. Although shares initially approached the $9 level on the news, the stock bottomed out at $6 last week. The gigantic spread reflects widespread doubt that Elliott and Epicor would strike a deal. With about 59 million shares outstanding, Elliott’s offer values Epicor’s equity at about $566m. In addition, Epicor holds $132m in cash and $380m in debt, giving the proposed deal an enterprise value of $814m. Elliott owns 12% of Epicor. We noted even before the credit bubble burst that Elliott might have a tough sell with Epicor.

Still hot for Sourcefire?

Brenon Daly

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.

Elliott elbows Epicor

Brenon Daly

Well, that didn’t take long. Just two days after we noted who won’t be bidding for Epicor, Elliott Associates tossed an offer of $9.50 per share for Epicor. The bid comes just two months after the hedge fund disclosed a large stake and began stirring for a sale of the old-line ERP vendor. With about 59m shares outstanding, Elliott’s offer values Epicor’s equity at about $566m. Additionally, Epicor holds $132m in cash and $380m in debt, giving the proposed deal an enterprise value of $814m. Epicor, which has seen substantial executive turnover this year, has struggled to record growth recently. However, the business has two attractive assets: a healthy maintenance revenue stream and solid cash-flow generation. Epicor shares closed Wednesday at $8.93, their highest level since mid-April.

Who’s not shopping for Epicor

Brenon Daly1 Comment

In virtually any other credit market, we’d be tempted to hold out old-line ERP vendor Epicor Software as an exemplary buyout candidate. The company will do about $530m in revenue this year, with $200m of that coming in the easily bankable form of software maintenance fees. (And the company is hardly expensive, with an enterprise value that’s just 3.7x this year’s maintenance revenue.) Moreover, it’ll throw off some $65m in cash flow in 2008 to help cover a hypothetical leveraged buyout.

But as we said, these are not normal days for debt. So in our report last week on an activist hedge fund pushing the company to pursue ‘strategic alternatives,’ we focused on the strategic buyers that might be interested in – and could afford – Epicor. They are, in order of likelihood: Microsoft, Oracle and SAP. Truth be told, though, none of those acquirers seems likely. And while we’re scratching potential suitors for Epicor, we can go ahead and erase M2 Technology Partners.

The buyout firm, which launched in mid-June with backing from Accel-KKR, is headed by Mark Duffell and Michael Piraino, who served as Epicor’s COO and CFO, respectively, until earlier this year. We understand that M2 is exploring other opportunities in the business applications market, and may well have its inaugural investment signed, sealed and delivered by the end of the year. It won’t be Duffell and Piraino’s old shop Epicor, but just think how much time they’d save on due diligence if it were.

Significant ERP deals

Date Acquirer Target Price
December 2000 Microsoft Great Plains Software $1.1bn
May 2002 Microsoft Navision $1.3bn
June 2003 PeopleSoft JD Edwards $1.75bn
December 2004 Oracle PeopleSoft $10.46bn
June 2005 Lawson Intentia International $449m
November 2005 Golden Gate Capital Geac Computer $1bn
January 2008 Unit 4 Agresso Group Coda $314m

Source: The 451 M&A KnowledgeBase

Standstill around the lamp

Brenon Daly

After a few months of pointed exchanges, Aladdin Knowledge Systems and its would-be buyer, Vector Capital, have agreed to a standstill in an attempt to negotiation a deal. Vector, the encryption vendor’s largest shareholder, had been pushing for a shareholder vote on Oct. 23 on its plan to replace three of Aladdin’s five board members. The buyout firm has set aside that demand, as well as agreeing not to unload any of its 14% holding. For its part, Aladdin agreed to sign a confidentiality agreement with Vector, and will not to seek another buyer for part or all of its business. Last month, Vector offered $13 for each share of Aladdin; the stock currently trades above that. The standstill gives the two sides at least a month to work out a deal, as Vector can’t call for another shareholder meeting until Oct. 30 at the earliest.

Battle set for Aladdin’s lamp

Brenon Daly1 Comment

In contrast to the LBO of data encryption vendor SafeNet a year-and-a-half ago, Vector Capital’s latest effort to take an IT security company private has been a more contentious process. After a series of public and private exchanges with Aladdin Knowledge Systems, Vector, through a subsidiary, called for a special meeting of shareholders to vote on the buyout firm’s plan to replace three of the company’s five board members. On Thursday, Aladdin agreed to the vote, setting October 23 as the date for the proxy showdown.

Vector is currently Aladdin’s largest shareholder, with a 14% stake (Aladdin insiders hold about 20%). The buyout firm began picking up shares earlier this summer at about $9 per share. It quickly piled up a 9% stake, and has since bumped it up to 14%. Along the way, we understand it made numerous private offers to buy the company and then disclosed in late August a public offer to buy the rest of the company at $13 per share. While Vector’s offer represented a 40-50% premium from when the firm started buying, Aladdin shares have ticked above the offer, changing hands at $13.80 in mid-Friday trading.

The unsolicited bid from Vector didn’t go over well with Aladdin. The company has dismissed it as ‘opportunistic’ but hasn’t said much more than that. Behind the scenes, Aladdin has carped that the only party that stands to gain from Vector’s bid is Vector, either by picking up Aladdin on the cheap or disrupting Aladdin’s business enough that it would benefit rival SafeNet, a Vector portfolio company. Investors, who have seen Aladdin shares shed as much as two-thirds of their value since last October, may not be so dismissive of the floor price set by Vector. (They are also mindful of what might happen to their holdings if Vector – stymied in its efforts to ink a deal – gets rid of its 14% stake of Aladdin. Look out below.)

In the month remaining before the vote, we suspect the jabbing and jockeying between Aladdin and Vector will increase. Israel-based Aladdin recently retained the PR firm Joele Frank, Wilkinson Brimmer Katcher, which is basically the go-to shop for companies caught in a bear hug, to get its side of the story out. But the company, along with all of its flaks, faces an experienced bidder. Not only has Vector pushed through unsolicited bids in the past, one of the partners working on the firm’s efforts, David Fishman, has worked on the other side of the table. Before joining Vector, Fishman was a banker at Goldman Sachs, where he worked on a number of defensive deals, including PeopleSoft’s attempted stiff-arm of Oracle. We’re pretty confident that no one involved in this transaction wants to repeat the nastiness of Oracle’s hostile run at PeopleSoft.

A flash-y, low-ball bid

Brenon Daly

SanDisk shot down a $5.85bn all-cash unsolicited bid from Samsung Electronics, saying the bid by the South Korean electronics giant doesn’t reflect the full value of flash memory provider. Despite the rejection, SanDisk shares surged 39%, closing at $20.92. Samsung bid $26 for each share. Last October, SanDisk shares changed hands above $50. Samsung made its offer public after saying four months of talks had come to nothing. SanDisk posted a loss and a sales decline last quarter. The company projects revenue for the current quarter will drop about one-quarter from last year. Included in SanDisk’s revenue is several hundred million dollars that Samsung pays SanDisk each year for patent royalties.

Vector’s velocity

Brenon Daly

With all the bidding and buying, it’s hard to keep straight what’s going on with Vector Capital. Already this year, the tech buyout shop has made several offers for down-and-out companies. It even got one through last week, as portfolio company Tripos announced a $57m purchase of drug development software maker Pharsight. The deal is expected to close by year-end.

However, Vector’s other recent M&A moves, most of them coming as unsolicited offers, haven’t been as straight-forward. It made an on-again, off-again run this summer at Corel, a half-decade after taking it private and two years after spinning it back onto the public market. (We would note that Corel shares have never traded as high as they did at the IPO in spring 2006.) Vector also bid for troubled content management vendor Captaris, but lost out to the acquisition-hungry Open Text. The $131m deal is expected to close before year-end, and Captaris shares are trading as if the transaction will go through.

In addition to those mixed efforts, Vector has made an unusual two-pronged approach at Israeli security company Aladdin Knowledge Systems. First, it offered to buy Aladdin outright, offering $13 for each share it doesn’t already own. (Vector is Aladdin’s largest shareholder, holding some 14% of the company.) Then, Vector offered to pick up just Aladdin’s digital rights management (DRM) business. The DRM business is the most-attractive unit at Aladdin, and would fit nicely with SafeNet, which Vector took private last year. Perhaps not surprisingly, Aladdin has said ‘thanks, but no thanks’ to both unsolicited options, and has retained Credit Suisse to advise it.

Selected Vector transactions

Year Company Price Market
2008 Precise Software (Symantec) Not disclosed Application performance management
2007 SafeNet $634m Encryption security
2006 Tripos $26m Pharmaceutical industry software
2003 Corel $122m Desktop productivity software

Source: The 451 M&A KnowledgeBase