Monday, March 15, 2010

And now, a higher bid for Chordiant shareholders (CHRD, PEGA)

This morning, Pegasystems (PEGA) announced it will purchase rival business software firm Chordiant (CHRD) for about $162million.  PEGA shares are up 5% on the news that this will be accretive to earnings in both 2010 and 2011 after excluding purchase accounting hits to earnings.

The $5 per share all-cash bid is about 50% higher than the attempted takeover in early January by CDC Software, a bid I called "pitifully low" at the time:

AlphaNinja 1/7/2010:
Chinese software firm CDC Software (CDCS) just announced what at first glance looks like a pitifully low offer to buy Cupertino, CA based competitor Chordiant Software (CHRD) for a "21% premium" over the past 30days closing stock price
CDC Software is offering $105million for the company, or $3.46 per share.    Trouble is, Chordiant has $50million in cash & equivalents, per its recent 10k.  So take that out of the offer and CDC is offering $55million for Chordiant, or about .6 times annual revenues.  Compare that to CDC's own valuation (also netting out its sizable cash hoard) of about 1.3times sales, and Chordiant shareholders should be very skeptical.

Fortunately for shareholders, Chordiant's board unanimously rejected that deal on January 11th:

Steven R. Springsteel, Chairman of the Board, President and Chief Executive Officer of Chordiant, said, "We were surprised by CDC's proposal given that there has been no prior acquisition-related dialogue between CDC and Chordiant. Notwithstanding that fact, Chordiant's Board of Directors, with the assistance of its financial and legal advisors, reviewed CDC's proposal. Our Board unanimously concluded that the proposal undervalues Chordiant's leading customer experience technology platform and extensive base of enterprise customers. The proposal also does not compare favorably with the value that we expect to deliver to Chordiant shareholders as an independent company. Going forward, consistent with our policy, we do not intend to publicly respond to unsolicited acquisition proposals."

PEGA shares are up nicely today, due to the attractive price paid.  Netting out Chordiant's balance sheet cash, the deal looks to value them at about 1.2x revenues, compared to PEGA's much richer 3.8x revenues.  Nicely done. 

Copyright 2010 AlphaNinja

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