Given Onyx's previous rejections of CDC's offers, some may say that this proposal will experience the same fate.
Posted Jun 21, 2006
When Onyx Software announced on June 6 that it had signed a definitive agreement to be acquired by privately held M2M Holdings, it seemed the Onyx-CDC acquisition bout was finally over. But CDC Software, parent company of Onyx rival Pivotal Corporation, isn't throwing in the towel just yet: The wholly owned subsidiary of Chinadotcom is back with a higher offer. Considering Onyx's previous rejections of CDC's offers, will Onyx finally bite?
CDC Software is proposing $4.85 per Onyx share in cash, or $5.00 per Onyx share with $2.50 in cash and $2.50 in stock, to Onyx shareholders. M2M Holdings, jointly owned by VC firm Battery Ventures and private equity investment firm Thoma Cressey Equity Partners, offered an all-cash transaction valued at about $92 million, or $4.80 per share. The M2M-Onyx deal would give Onyx the strong financial support of its would-be parent company. Onyx would also become a private company, offering shareholders liquidity at a premium over its recent trading prices, and helping Onyx cut costs tied to being public.
At the time Onyx announced that it had signed the definitive agreement, some Onyx directors and officers, representing about 17.6 percent of the company's outstanding shares, had already entered into voting agreements in support of the acquisition. The deal, subject to approval by holders of a majority of Onyx's outstanding common stock, was expected to close in the third calendar quarter of this year, and once it did, Onyx would operate as a separate business unit of Made2Manage Systems, M2M's primary asset.
This proposal from CDC certainly isn't its first attempt to acquire Onyx. The company's most recent pitch, announced in March, was for $4.57 per Onyx share in cash, or $4.78 per Onyx share in cash and shares. That offer came almost two months after Onyx rejected CDC's December 2005 proposal, which included a capital infusion of $50 million, a double-digit percentage premium for Onyx shareholders, and keeping Onyx public. Onyx (which lost its chance to acquire Pivotal to CDC) cited several reasons for rejecting the first bid, including no cash consideration for shareholders and a significant premium that Onyx would have to pay for CDC Software division assets. Onyx also claimed that poor performance of CDC Software division assets, evidenced by lower reported 2005 license revenue growth compared to Onyx, was another indication that the proposed acquisition wouldn't produce a stronger combined unit and wasn't in the best interest of its shareholders.
CDC maintains that acquiring Onyx would be highly complementary, would generate substantial synergies, and would optimize value for CDC Corporation and Onyx shareholders. "We remain firm in our belief in the benefits of a combination, particularly between our Pivotal CRM division and Onyx," Eric Musser, executive vice president of strategy, mergers, and acquisitions for CDC, said in a statement. "This potential combination harbors benefits for both shareholders and customers of Onyx, including complementary industry specialization, products, geographic markets, sales channels and marketing strategies."
George Goodall, research analyst at Info-Tech Research Group, is surprised that CDC made another offer, noting that "it certainly speaks to CDC's ongoing commitment to enterprise apps in general, particularly CRM." He adds, though, that Onyx passed on previous offers for two reasons, the relative small size of the offers and cultural issues. "With CDC, Onyx would become subsumed by Pivotal," he says. "M2M offered a way of keeping Onyx alive as an organization. Now that M2M has made an offer that Onyx views as attractive, Onyx's price has been set. CDC will have to pay a premium for cultural alignment. It will be interesting to see just how high that premium will be."
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