MYOB's keeps its KKR bird in hand as it searches for a higher offer

Monday 24th December 2018

MYOB directors appear to be backing themselves to come up with a better offer while keeping the KKR takeover offer as a backstop.

After completing due diligence, global predator KKR lowered its offer price from A$3.77 to A$3.40 per share, reducing its valuation of the ASX-listed MYOB, which competes against New Zealand-based, ASX-listed cloud accounting services provider Xero, by A$220 million to A$2 billion.

Just days after saying “it is not in a position to recommend” KKR’s lower offer, the accounting software company’s board now says it has an agreement with KKR to back the offer unless it can find a better one and so long as an independent expert concludes the offer is in the best interests of shareholders.

The board is free to solicit competing proposals until Feb. 22 and KKR has committed to selling into a higher offer without a break fee.

If the KKR bid succeeds, MYOB’s board has agreed to recommend it and to allow the takeover via a scheme of arrangement. That requires a vote by at least 50 percent of MYOB’s shareholders with at least 75 percent favouring the takeover.

That’s a significantly lower bar than the 90 percent acceptance threshold which allows somebody mounting a takeover to compulsorily acquire the remaining shares.

KKR’s offer will preclude MYOB from paying a final dividend, arguably money that already belongs to shareholders. Last year, MYOB, paid a final dividend of 5.75 Australian cents per share.

That effectively reduces the value of KKR’s offer by A$34.8 million, assuming MYOB was going to match last year’s final dividend.

MYOB has confirmed its guidance for calendar 2018 that organic revenue will grow about 7 percent, R&D spending will be about 19 percent of revenue, that underlying earnings before interest, tax, depreciation and amortisation will be 42-to-43 percent of revenue and that free cash flow will be more than A$100 million.

MYOB used to be the overwhelming market leader in the accounting software market in Australia and New Zealand when desktop software was the norm.

But Xero stole a march on MYOB when it launched its online only, software-as-a-service accounting product, although MYOB has been working hard to catch up even as its desktop products are dying a slow death.

At Sept. 30, MYOB claimed more than 550,000 online subscribers while Xero had 981,000 in the region and 1.58 million globally.

(BusinessDesk)

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