Despite being rebuffed for a third time, CDC Software Inc. today took its fight to acquire Onyx Software Corp. to investors, claiming its new offer is superior in terms of value and flexibility to the all-cash transaction the CRM software vendor recently accepted from the holding company that owns ERP software vendor Made2Manage Software Inc.
In a webcast with investors late this afternoon, Eric Musser, CDC Software's executive vice president of strategy, said his company's sweetened offer of either $4.85 a share in cash or the equivalent of $5.00 per share in cash and stock from its parent company CDC Corp. trumps the $4.80-per-share cash offer made by Made2Manage Holdings to acquire Onyx. CDC's revised proposal, he said, represents a premium of up to 4.2% over Made2Manage's competing offer, excluding the effect of $4.5 million in break fees and expenses that Onyx would be required to pay if that deal collapses.
Moreover, Musser said the deal offered by Made2Manage only provides a 2 cent premium over the $4.78-a-share offer CDC made in its second proposal last April. By accepting the Made2Manage offer, Musser said, Onyx's management gave up an opportunity to get CDC's "best and final offer."
Playing to investor sentiment, he pointed out that Onyx's board "didn't even try" to let the situation escalate into a bidding war. Musser said CDC's offer was rejected without any discussion whatsoever, which, he said, raises concerns about the Onyx management team's objectives. He also said that following Onyx's rejection in January of CDC's initial offer, Onyx made statements that suggested its intent to remain independent. It now appears that company management was seeking other offers, Musser stated.
Onyx's inconsistent public statements reflect "a clear desire of Onyx management to mislead the market," Musser declared.
Musser also claimed CDC's third and current offer provides a superior mix of value and choice to Onyx shareholders. "We ask Onyx to reconsider its rejection of our proposal and to move quickly to assess alternatives," he said.
If Onyx stands firm on its rejection, Musser said CDC is considering its alternatives, including a proxy fight -- which could make investors the ultimate arbiter of which acquisition offer is superior. "Launch a formal proxy," suggested a representative of Titan Capital Management, an Onyx investor that participated on the conference call. "That's the only way we know you are serious."
A representative from Loeb Partners Corp., another investor on the call, said CDC needed to do a better job of demonstrating the superiority of its offer by making it "crystal clear that [its] merger agreement is tighter and safer for shareholders" than the one that exists with Made2Manage.
In a statement released last week, Onyx's board of directors reaffirmed its support of the Made2Manage acquisition proposal, noting that the offer provides "Onyx shareholders liquidity at a premium to Onyx's recent trading price, as well as a high degree of certainty that the transaction can be consummated as soon as the third quarter of 2006."
The board also questioned the timing and motivations of CDC's twice-revised acquisition proposal: " ... coming in the final weeks of a fiscal quarter, combined with CDC's previous behavior, suggests the possibility that CDC's announcement is disingenuous and that its true intention is to harm Onyx's business and enhance CDC's competitive position in the sales process, rather than engage in serious negotiations ..." the statement said.
In his conference call, Musser said CDC had tried to negotiate with Onyx since making its initial offer last December. "We tried to get a dialogue going and never backed away from that position," he said, noting that he didn't want the companies' differences to come across as a "he said, she said" dispute.
In its statement, Onyx's board claimed that CDC has repeatedly declined to engage in negotiations with the CRM vendor since making its initial acquisition offer -- via press release -- last December. " ... in the past, [CDC] been nonresponsive to multiple contacts from Onyx and Piper Jaffray, Onyx's financial advisor, to pursue such discussions ..." the Onyx statement noted.
The Onyx board said that terms of its agreement with Made2Manage prohibit the company from participating in any discussions or negotiations regarding a possible transaction or furnishing CDC with any due diligence information -- unless the Onyx board of directors determines CDC's offer to be superior, or one that could be concluded in a reasonable time frame. "The board has determined that it cannot conclude that any or all of the CDC announcements are or are reasonably likely to lead to a superior transaction," the statement noted.
Onyx offered a detailed rationale for its perspective. The board's statement said CDC made a revised offer on June 20, 2006, that was initially described as an all-cash offer valued at $4.85 a share, but two days later "abandoned" the proposal in favor of a combination cash and stock deal that valued Onyx at $5 a share. This, the Onyx board said, " ... demonstrates CDC's inconsistent statements and unpredictable behavior."
Moreover, Onyx said, there is a substantial likelihood that, based on changes in CDC's stock value, the actual price paid to Onyx shareholders under such a deal could be as little as $4.50 per share. The company noted that the long-term value of CDC stock is "highly uncertain because CDC lacks a sustained history of profitable operations and has a poor track record of delivering shareholder value." The statement also reiterated previously stated Onyx concerns that there are "limited synergies between the Onyx and CDC product lines ..."
In addition, Onyx said CDC's offer of cash and stock "would likely take several months longer to complete than the proposed transaction with [Made2Manage] due to the need to file a registration statement with the SEC."
Onyx, meanwhile, indicated that it has been notified by the Federal Trade Commission of early termination of the waiting period under the Hart Scott Rodino (HSR) Antitrust Improvements Act of 1976 (HSR), as amended, related to the Made2Manage offer. Completion of the HSR review satisfies a regulatory review condition to closing the transaction, the company said.
The consummation of the transaction remains subject to approval by holders of a majority of Onyx's outstanding common stock and other customary closing conditions. Onyx said it still expects the transaction to close during the third quarter of 2006. Certain members of Onyx's board and management team representing approximately 17.6% of the company's outstanding shares have already entered into voting agreements in support of the acquisition, Onyx and Made2Manage said in a joint statement issued at the time the acquisition agreement was disclosed.
Interestingly, CDC, which has been built on the acquisitions of enterprise software providers such as Ross Systems and Pivotal Corp., appeared ready to back off from its pursuit of Onyx both before and after Onyx agreed to Made2Manage's acquisition offer. At that time, Musser indicated that CDC had made what it believed was a fair offer and was prepared to move on if Onyx did not acquiesce.
While awaiting Onyx's response to its second offer, CDC acquired c360, a provider of Microsoft Dynamics CRM development tools and plug-in applications.
Musser today said CDC is continuing its pursuit of Onyx "in spite of concerns" caused by the actions of Onyx's management team, because of the deal's potential stakeholder value. "I have to agree that this has been a very unusual process, but some things are consistent -- we continue to have a strong belief in the business combination and a desire in realizing its value," he said. "We are continuing to simplify the offer and make it more attractive to Onyx shareholders."