Sharebroker Craigs Investment Partners is advising Diligent Corporation shareholders to vote against a takeover bid for the technology company, describing the offer as "low and opportunistic".
The NZX-listed corporate governance software developer announced yesterday that it had entered an agreement to be acquired by New York-based investment firm Insight Venture Partners.
At US$4.90 a share (around NZ$7.36), the offer values Diligent at roughly $941 million, including cash.
The offer price is a 31 per cent premium to the pre-announcement share price.
"In our view Insight's takeover offer of US$4.90 per share ... is low and opportunistic, and shareholders should vote against the proposal," Craigs analyst Stephen Ridgewell said in a note.
"Unfortunately, unless a superior competing takeover offer is made it seems likely the offer will succeed, with only 50 per cent support required to proceed to compulsory acquisition and 35 per cent already committed."
Diligent is based in the United States and the offer is being made under US takeover law.
In a conventional New Zealand takeover, the bidder would be required to secure 90 per cent acceptance from shareholders before being able to compulsorily acquire 100 per cent of a company.
Ridgewell said the offer price, despite being a 31 per cent premium to Friday's close, was only 4 per cent above Craigs' updated, spot discounted cashflow (DCF) valuation of $7.11 on Diligent as a standalone business.
In our view Insight's takeover offer of US$4.90 per share ... is low and opportunistic, and shareholders should vote against the proposal.
Craigs also believed the timing of the offer was poor, coming after a period of sustained weakness in software-as-a-service company valuations, and as Diligent neared the end of a three-year "cost-in" phase, which had depressed earnings growth, he said.
Ridgewell said the bid also came prior to the launch of the Teams product in the second quarter, which could drive a higher valuation.
"While our base case $7.11 a share valuation assumes moderate success for Teams, more bullish scenarios could justify a valuation of over $9 a share," he said.
Diligent's board has given its support to the offer.
"After a careful review of strategic alternatives, the Diligent board of directors determined that the terms offered by Insight represent a transaction that is in the best interest of stockholders," chairman David Liptak said yesterday.
The holders of Diligent's preference shares, including Spring Street Partners, Diligent's largest shareholder, have entered voting agreements in support of the deal.
The company said yesterday that a special shareholders' meeting would be held, and the deal was expected to proceed in the second quarter of this year.
Diligent shares rose 24 per cent on news of the offer yesterday, to close at $7.14.