Manikay puts MYOB takeover in jeopardy

Manikay puts MYOB takeover in jeopardy

Manikay Partners is edging closer to blocking the takeover of business management software provider MYOB (ASX: MYO) as it acquires more of the Australian company.

Hedge fund Manikay now owns 14.93 per cent of MYOB, up from just 9.9 per cent two weeks ago. In order for the takeover of MYOB by Kohlberg Kravis Roberts & Co (KKR) to pass 75 per cent of the total number of votes cast must be in favour of the takeover.

Manikay has been vocal about its disapproval of the $2.2 billion takeover offer from KKR.

MYOB opened its books to KKR back in November 2018. The private equity firm already owns a 20 per cent stake in MYOB. On 24 December 2018, MYOB announced that it had entered into a Scheme Implementation Agreement (SIA) with KKR for the acquisition of MYOB.

Manikay believes that MYOB has been undervalued by KKR and that MYOB is best suited to continue independently, without the control of KKR.

The increased shareholding by Manikay comes as KKR announced its offer to be the "best and final offer" yesterday.

"KKO BidCo has today informed the directors of MYOB that the all cash consideration of $3.40 per share under the SIA is its best and final offer," says KKR.

Speaking as part of the Scheme Booklet released last week chairman Justin Milne says the takeover is a good opportunity for shareholders.

"While the MYOB Board is confident that MYOB is well positioned to continue to deliver growth for shareholders into the future, the MYOB directors consider that the scheme provides the opportunity for MYOB Shareholders to realise a certain and immediate outcome that is fair and reasonable and in the best interests of MYOB shareholders," says Milne.

Independent advisory firm Grant Samuel has also labelled the KKR proposal as "fair and reasonable and in the best interests of MYOB shareholders". The advisory firm has valued MYOB in the range of $3.19 to $3.69 per share. KKR's proposal of $3.40 per share falls within this range.

"After some years of strong earnings growth, MYOB's revenue growth has slowed and its earnings have flatlined, reflecting vigorous competition in the market for SME accounting software," says Grant Samuel.

"MYOB's recent financial performance and the vigorous competition that it will likely continue to face suggest that a conservative approach to valuation is warranted."

"MYOB has effectively been "on the market" for some time. In particular, given the "go shop" provisions of the SIA, there have been few impediments to counter-offers for MYOB from third parties."

"MYOB and its advisers have extensively canvassed the market for counter-bidders, and have provided due diligence material to a number of parties potentially interested in acquiring MYOB. Given the absence of any counter-offer, the KKR Proposal may be viewed as the highest offer to have emerged from a competitive process for control of MYOB."

"In Grant Samuel's view, the most persuasive evidence as to MYOB's value is the outcome of the process by which counter-proposals for its acquisition have been sought for MYOB. On one view, the KKR Proposal (as the highest offer to have emerged from that process) definitionally represents fair value."

In 2018, MYOB announced it will no longer pursue the acquisition of Rekon to instead focus on its planned investment strategy.

Citing significant delays, the result of extensive regulatory requirements, MYOB announced in May that it would terminate the acquisition of Reckon's Accountant Group assets.

MYOB said the sale and purchase agreement stipulated a six month period prior to completion, within which certain conditions had to be satisfied.

MYOB shareholders will be given an opportunity to vote on the proposal on 17 April 2019.

Shares in MYOB are down 0.90 per cent to $3.31 per share at 12.00pm AEDT.

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