Canada`s DataMirror Corporation has raised the stakes in its hostile takeover bid for Idion Technology Holdings, almost doubling its previous offer price.
However, with shareholders representing at least 54% of Idion`s share capital indicating that they are not ready to sell, the revised offer could be dead in the water unless DataMirror can convince them otherwise.
DataMirror notified the market this morning that it has revised its offer from 65c to R1.20 per Idion share, and has indicated that it would now be satisfied with a majority stake in Idion.
However, while an official comment from Idion is still pending, its management, which holds 44% of the issued shares, has indicated that it is not willing to sell. Coronation Holdings, which owns another 10%, says it will not sell at anything less than R3 a share.
Coronation fund manager Sunil Shah said from Cape Town this morning that the newest offer is closer to reality, but the newest information provided by Idion in its circular to shareholders indicates that the company`s intrinsic value is far higher.
"We will not sell at less than R3," he says. He adds that although DataMirror CEO Nigel Stokes has been portrayed as an eccentric monster in SA, a recent visit to Cape Town indicated that he has a good understanding of the underlying dynamics of the industry and potential synergies between the two groups.
However, despite representations by DataMirror to the contrary, Shah believes "Idion is not in a financially distressed position".
A merger between the two, which he describes as leaders in the industry, might make sense at a better price, he says.
DataMirror had previously aimed for an outright acquisition, intending to delist the South African company from the JSE.
The original offer valued Idion at about R73 million, whereas the new offer, which closes on 15 May, values the company at R135.1 million.
"The offer is no longer conditional upon the acceptance by 90% of Idion shareholders, which would have excluded those shares already held by DataMirror, but is now instead conditional upon DataMirror receiving valid acceptances that will result in it holding 50% plus one share of Idion`s share capital," DataMirror says.
Stokes says since global technology markets continued to be soft in the first quarter of the year, and the outlook for the rest of the year is uncertain, statements by Idion in its circular to shareholders relating to growth, income streams and cash flow are optimistic.
He adds that Idion`s statements are not supported by financial statements or reports from accountants or auditors.
"Nevertheless, we have considered the responses received from Idion shareholders as well as other information relating to Idion, and we wish to increase our shareholding," he says.
"We are a strategic investor in Idion and are the single largest shareholder. If we are able to increase our holding materially, we may act as a strategic partner to Idion. This may involve the provision of capital and the merging of certain business interests on mutually acceptable terms."
DataMirror, which acquired more than 16.5% of Idion`s issued share capital before announcing its offer to shareholders on 18 March, says its intention to increase its stake is despite Idion having had negative cash flows over the past two years and a failure to meet expectations in the past.
Not unrealistic
An analyst says while the original offer was very opportunistic and too low, the latest price is not unrealistic.
"The market reacted to the last results by knocking the share price down to 30c, but now they don`t want to accept the offer. You have to ask what has really changed at Idion to justify the share price going four times higher," he says.
He attributes the share rise in the past few weeks partly to emotion, with local investors reacting to a perceived intrusion by an offshore company.
"DataMirror was very arrogant at its first presentation to shareholders. They had this attitude of 'You`re screwing things up, but we can help because we know what we`re doing`, and the people at the presentation didn`t like that."
However, he believes there is still risk in Idion. "In the past few weeks people have been talking about the US economy recovering, but there hasn`t yet been an increase in IT spending. There is value in Idion`s technology - apparently it is a good product - but if people aren`t spending, that doesn`t mean much."
If shareholders had accepted the original offer, minorities would not have benefited from a turnaround at Vision, but with the latest offer, they could still benefit from any turnaround.
He points out that management holds 44% of the group`s shares and that the board is on good terms with some of the larger institutional investors. If the board convinces those investors not to sell, the revised bid could fail.
"But if the share goes to R1.50, and the next results aren`t great, management is going to take a lot of flack," he adds.
The Idion share was trading at 131c on the JSE by noon today, up 21c or 19.09% from yesterday`s close.
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