Despite an analyst’s advice to vote against it, offer by Insight Venture appears likely to succeed

Reading Diligent Corporation's acquisition announcement this week, you could be forgiven for assuming it was a done deal, signed and sealed.

With the ink on the statement barely dry, chief executive Brian Stafford was already talking-up the NZX-listed corporate governance software developer's future as a privately-owned business.

"Our game plan will not change as a private company - to be the leading provider of collaboration software for boards, committees and leadership teams," he said.

The deal still requires shareholder approval, but a hostile takeover this is not.


The company has entered into an agreement with US-based Insight Venture Partners to purchase Diligent at US$4.90 ($7.39) a share - a 31 per cent premium to the pre-announcement stock price.

Diligent's board has thrown its support behind the offer and major investors also appear keen on the deal.

Auckland businessman Peter Huljich, whose associated entities own about 4 per cent of the technology company, apparently doesn't see any need to hold back and wait for any counter bids or push for a higher offer from Insight.

"We'll be selling," Huljich told the Business Herald on Monday. "Obviously, it's been a bit of a roller-coaster ride and we're quite happy to get off here."

The holders of Diligent's preference shares, including Spring Street Partners, the firm's largest shareholder, have entered voting agreements in support of the deal.

Under corporation law in the US state of Delaware, where New York-based Diligent is incorporated, only 50 per cent of shareholders must accept an offer before the remaining shares can be compulsorily acquired. Under a conventional New Zealand takeover, a 90 per cent acceptance threshold would have to be reached.

Craigs Investment Partners analyst Stephen Ridgewell labelled the offer "low and opportunistic" this week, and advised shareholders to vote against it. But with 35 per cent acceptances already committed, the offer appeared likely to succeed, he said.

Thanks to the enthusiasm of major Diligent shareholders, some smaller-scale investors - who may not be so enamoured with the deal - will probably be forced to sell up. It's a good reminder for investors that not all companies listed on the local sharemarket are governed by New Zealand's takeover code.

Diligent shares closed down 6c last night at $7.17.

Mixed views

Australian investors were evidently less impressed with A2 Milk's half-year result than their Kiwi counterparts when the firm reported on Wednesday.

The dual-listed dairy marketer posted a big jump in interim profit - to $10.1 million from $125,000 in the year-earlier period - and boosted guidance for full-year earnings. The result sent A2 shares soaring 29 per cent to an intra-day record of $2.61, taking the company's market capitalisation close to the $2 billion mark. But it all came unstuck when the Aussie market began trading at midday, New Zealand time.

A2 shares eventually closed only 3.5 per cent above their opening price, at $2.10, on the day of the result.

"There was a lot of hype brought on by the New Zealand investors when the report came out," said Grant Williamson, of sharebrokers Hamilton Hindin Greene.

"However, the Australian investors were not quite as excited and decided to take profits pretty much when their market opened."

The company's shares closed down 7c yesterday at $2.03.

Good pick

Diligent Corporation was one of the top choices in the Business Herald's latest Broker Picks competition, and it turns out the three firms that selected the software developer were on the money.

Three of the nine brokers that took part - Craigs Investment Partners, MSL Capital Markets and OMF - picked Diligent, whose shares spiked by 27 per cent on Monday following the announcement of the firm's acquisition agreement with Insight Venture Partners.

MSL Capital managing director Andrew McDouall, whose firm was lead manager in Diligent's 2007 initial public offering, even went as far as tipping the potential for "corporate activity" around Diligent in the Broker Picks article, which was published on Boxing Day.

Interestingly, none of the nine brokers picked Nuplex Industries, whose shares also rallied on Monday after the speciality chemicals firm announced a $5.55 a share takeover bid from European competitor Allnex Belgium. The Allnex offer represents a 44 per cent premium to the pre-announcement share price. Nuplex shares closed up 12c yesterday at $5.10.

Retail pressure but dividends still solid

Competition is likely to keep a lid on Contact Energy's share price, although shareholders will continue to receive solid dividends, says research provider Morningstar.

The Wellington-based electricity generator and retailer reported a first-half loss of $116 million on Monday, largely as a result of impairments to the value of its closed Otahuhu-B power station. The bottom-line result compared with a $51 million profit in the same period a year earlier.

Following the result, Morningstar retained its $5.50 fair value estimate on Contact shares, which closed at $4.46 last night.

"The stock may continue to trade at a discount [to fair value] in the near term given competition will likely keep retail margins under pressure and the wholesale market is oversupplied," said Morningstar analyst Adrian Atkins. "In the meantime, investors should receive attractive dividends and the benefits of share buybacks."

Contact announced an interim dividend of 11c per share.