Onyx And CDC: Hostile CRM Takeover Averted

David Sims : First Coffee
David Sims
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Onyx And CDC: Hostile CRM Takeover Averted

By David Sims

The news as of the mid-morning coffee break, and the music is Steve Taylor's surprisingly durable album I Want To Be A Clone:

The news was helpfully forwarded on to First Coffee from an Onyx official: CDC Corporation announces that it's "withdrawing and terminating its previously announced $5.00 per share all cash tender offer for all outstanding shares of common stock of Onyx Software Corporation."

The offer was commenced on July 12, 2006 and was scheduled to expire on August 8, 2006. No tenders of shares for the CRM vendor will be accepted, and any shares previously tendered will be returned, according to CDC officials.

So it looks like CDC's hostile bid for Onyx has ended with a whimper. In deciding to withdraw and terminate the tender offer, CDC's management and board cited "the remote likelihood that the conditions to the tender offer would ever be satisfied."

Good call, seeing as how Onyx never showed the slightest interest in being taken over by CDC, was prepared to take a poison pill and had promised herself to another suitor. One imagines that cat chased around Paris by Pepe Le Pew.

Back in January Hong Kong-based CDC had offered to combine all the assets of CDC Software with Onyx, and $50 million in cash, for a majority of Onyx's common stock, keeping Onyx a publicly-listed company. Onyx's management announced almost immediately they were rejecting the deal.

The Puget Sound Business Journal reported at the time that "Onyx officials gave a variety of reasons for turning down the offer, including: CDC Software assets are performing poorly; CDC lacks a sustained history of profitable operations and has a poor record of delivering shareholder value; and synergies between the Onyx and CDC product lines are limited."

Specifically, Dow Jones reported, Onyx said on January 5 its board unanimously rejected CDC's offer for being "highly dilutive" to Onyx shareholders. Plus they didn't think there would be anything but "limited synergies" between the companies. And they didn't like CDC's idea that Onyx pay a premium for CDC Software division assets.

Fast-forward to March, when CDC presented a new proposal to the board of directors of Onyx Software for "a strategic transaction that would combine Onyx Software with CDC Software."

Onyx said it would review the new proposal, under terms of which each Onyx shareholder would have a choice to receive, for each Onyx share, consideration consisting of either all-cash, or cash-and-shares in CDC Corporation.

At the time John Clough, chairman of the executive committee for CDC Corporation and vice chairman of the board for CDC Software, said CDC Software still really, really wanted to acquire Onyx, particularly for its Pivotal CRM division, but confessed he was "surprised by the lack of interest” the proposal received from Onyx.

Then in June Onyx announced it signed a definitive agreement to be acquired by privately-held M2M Holdings Inc., the holding company that is jointly owned by Battery Ventures VI, L.P. and Thoma Cressey Equity Partners and whose primary asset is Made2Manage Systems Inc., an enterprise software and services company.

It’s an all-cash transaction valued at $4.80 per share, or approximately $92 million. The parties still anticipate closing the transaction in the third calendar quarter of 2006.

“We believe that this transaction is the right decision for Onyx shareholders, customers, partners and employees,” said Janice P. Anderson, chairman and chief executive officer of Onyx upon announcing the M2M deal. “Upon closing, this acquisition will provide liquidity to shareholders and a premium to our recent trading prices.”

Upon closing of the transaction, Onyx would operate as a separate business unit of Made2Manage Systems. In late June Onyx issued a confirmation, "responding" to "the recent press releases issued by CDC Software regarding the definitive merger agreement executed between Onyx and M2M Holdings, Inc." Onyx said yes, it was still happily engaged to M2M, thank you very much.

Onyx officials noted at the time that CDC’s June 20 press release described an all cash $4.85 offer, "yet only two days later, CDC has abandoned its all cash offer and now purports to offer Onyx shareholders only a combination of cash and stock, demonstrating CDC’s inconsistent statements and unpredictable behavior." They added that the stock could be trading as low as $4.50 by the time the deal went down, too.

Now it's early July. Industry trade journal InsightExec reports that CDC is offering a cash bid of $5 per share in their hostile takeover bid for Onyx. "After continued refusals by Onyx to consider seriously our prior offers to acquire the company, we have been forced to take our offer directly to the Onyx stockholder," said CDC Executive Vice Chairman and Chief Executive Peter Yip, who personally found the offer "clearly superior" to Onyx’s prefered option of selling out to M2M Holdings.

The latest hostile offer, InsightExec says, "comes after CDC offered to buy Onyx for a $50 million cash infusion, saying it would contribute all of its software assets. Onyx rejected the bid, and CDC upped its offer to $80 million."

Later in July Onyx confirms that CDC made its unsolicited cash tender offer to acquire all of the outstanding shares of Onyx’s common stock not already held by CDC or its affiliates for $5.00 per share.

Onyx had consistently refused to even discuss making reasonable accommodation to allow CDC to conduct due diligence in connection with negotiating what CDC euphemistically calls "a merger agreement," which should have been the key tipoff right there that they were rummaging around in the medicine chest for the poison pill bottle. Onyx had even made CDC commit to a timeline ending Tuesday evening on July 25, 2006 PST.

Bottom line, Onyx spurned what CDC thought of as "reasonable evidence" that CDC had adequate internal funds to consummate the offer, and imposed a deadline of Tuesday evening, July 25, 2006 PST to complete all due diligence.

Lo, the witching hour approacheth.

Several of the conditions the Onyx board chose not to meet were to waive the provisions of Onyx's poison pill and render the provisions of Washington State's anti-takeover provision inapplicable to CDC.

So seeing as how Onyx set a due diligence deadline and then did everything in their power to make sure CDC wouldn’t meet it short of shooting CDC accountants with rubber bands, CDC's management and board has as of now determined that it is "extremely unlikely the Onyx board would ever take the actions required to satisfy the conditions to CDC's tender offer," and therefore considers continued pursuit of the tender offer "not be the best and most productive use of management's time and CDC's resources."

Probably the correct conclusion. Oh but CDC has to play sour grapes, you know, they really didn't want to go out with that cheerleader, don't know why you would imagine they would. "On July 17, 2006, Onyx announced surprisingly poor preliminary financial results for Q2 2006, including license revenues of only $1.6 million and total revenue in the range of $11.7 million to $11.9 million," CDC officials say, still managing to sound like a guy crying in his beer at the bar.

Still, CDC continues to be "disappointed with the obstacles to productive discussions from Onyx's board of directors. We believe that the process used to sell the company will not provide Onyx shareholders with maximum value," according to Peter Yip, CEO of CDC Corporation.

But it looks like this one's over, folks. Stick a fork in it.

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