However the price was slammed by several Wall Street investors and financial analysts and who deemed it low and criticized Hummingbird’s board for not entertaining other strategic bids.
The all-cash deal was announced last Friday and is valued at $26.75 per Hummingbird share. The offer is a 16% premium over Hummingbird’s $23.13 closing price on Nasdaq last Thursday.
Part of deal includes a $135m investment by private equity firm Tennenbaum Capital Partners LLC that goes towards financing the transaction.
Hummingbird’s board has approved the transaction but it still requires the approval of at least two-thirds of shareholders and regulatory clearance.
Both parties expect to close the transaction by end of July. Hummingbird’s chairman Fred Sorkin and CEO Barry Litwi,n who collectively own around 12% of the company, 2.14 million shares, have already voted in favor of the sale.
Sorkin, who also co-founded the company, said in a statement that the shareholders will get an immediate cash return and the company will continue to focus on its core ECM and network connectivity business under its new ownership.
Separately, Dr Romesh Wadhwani, CEO of Symphony, also expects to continue to build new business opportunities on what he called proven and market leading ECM and network connectivity products.
We look forward to this next stage in the company’s life.
Financially Toronto-based Hummingbird has performed adequately at best over the past few years without flattering its share price. But its wings have remained clipped. Even though the company posted a profit of $4.9m against revenue of $64.2m in its recent second quarter, shareholders have become increasing frustrated by the lack of growth which has kept their investments stuck in the $20-per-share range for several years.
Sorkin acknowledged in a post-announcement conference call last Friday that the company had been under pressure from shareholders to improve liquidity, which he said was the key driver for the sale of the company.
Liquidity has been problem from our shareholders for the past five years, Sorkin said.
He confirmed that the company had started exploring opportunities for an acquisition around five months ago, and rejected a couple of potential bids because they were deemed not to be from serious buyers.
Therefore it seems as if Symphony was the only bid that Hummingbird got.
They were really the only ones that put all the money on the table, Sorkin said.
Enter Palo Alto-based Symphony, which has $1.2bn in assets and over 7,000 employees offers business management for companies like Sony Corp, Pepsico Inc and Ocean Spary Inc.
Symphony is also a holding company for several other technology companies including Information Resources Inc, Gers Retail Systems, and ImmediateFX LLC. The company seems to have a knack in the industry for turning around under-achieving companies. It is likely to implement changes to boost Hummingbird’s efficiency, with a long-term goal possibly being to spin out its investment out as a higher growth business.
Sorkin expects Symphony to keep Hummingbird’s connectivity and ECM businesses intact and did not see any potential to merge one or the other into one of Symphony’s existing companies.
I don’t see that happening, no, he said in the conference call.
Sorkin somewhat sidestepped the question about the future role that he and other current Hummingbird executives would play under Symphony’s wing, saying only that the company still alive and active and we still have a business to run.
However Hummingbird’s shares climbed to $27.85 in Friday afternoon trading suggesting that investors were expecting a higher and more bids.
That was certainly the feeling among financial analysts that grilled Sorkin and other Hummingbird executives in Friday’s fiery conference call.
One enraged Morgan Stanley analyst called the deal a farce and charged Hummingbird directors directly with ignoring their duty to shareholders by not soliciting other offers. He even suggested legal liability for Hummingbird’s board.
To talk about liquidity as the main reason for doing a deal and a premium of 15% says nothing about the valuation [of the company], said Richard Glass a fund manager at Morgan Stanley. To not solicit other bids from strategic buyers or otherwise is ridiculous.
I would encourage everyone to vote against this and maybe management need to find a new home if they don’t believe this business is worth any more, he said. Glass holds around 5% of Hummingbird’s stock, according to data collected by Bloomberg.
He was not alone in expressing his frustration.
Kevin Oram of Praesidium Investment Management also thought that Hummingbird’s board had under-sold the company and neglected its duty to canvass strategic buyers. He was stunned that a strategic buyer would not be pay more for the company.
There are quite a few of us who think the company is worth significantly more than this price right now, he said. How can you not solicit other bids, how can you go and try to sell the company without there being a competitive bake-off?
Praesidium owns around 1.6% of Hummingbird’s shares
The under-fire Sorkin retorted by saying that the company was never on the block and that the board had responded to incoming interest from potential buyers, of which Symphony was the most serious.
We were not shopping around. We were dealing with incoming calls, he said.
He said that Hummingbird consulted Banc of America Securities LLC and Lehman Brothers Holding Inc, which had both recommended that Symphony’s price was fair.
The bid is based on what the company is worth today. But if shareholders think this bid is too low they can not vote for it.
Sorkin pointed out that the door is still open to other bids., saying: If other people want to enter bids they can still do it to.
The question and answer session at the end of Friday’s conference call certainly left a bad taste in the mouth and suggests that a yes vote on the merger is by no means a foregone conclusion.
Ralph Garcea, an analyst at Credit Suisse First Boston, believes that the stage has now been set for an auction process to commence. He made the comment in a note to clients after the conference call ended.
Founded in 1984 as a consulting business, Hummingbird evolved into a strong player in the PC to host connectivity and terminal emulation software market with its Exceed, Maestro and HostExplorer products. Early rapid growth gave the company the confidence to go public in 1993 in a Cdn $45m IPO. But after demand for its connectivity software flattened out, the company realized its needed to diversify and embarked on a series of haphazard technology acquisitions.
First the company bought Andyne Computing Ltd and Leonard’s Logic SA in 1998 and 1999 respectively to enter the business intelligence and ETL (data warehousing) markets. After making little headway in this space it then turned its attention to ECM in 1999, triumphing over rival Open Text Corp in a bidding war to buy document management software vendor PC DOCS Group. The PC DOCS acquisition laid the foundation for short-lived forays into the then red-hot knowledge management and enterprise portal software markets.
More recently Hummingbird has regrouped its products and strategy around ECM, a software technology that helps companies managed unstructured content like documents, records, correspondence, and contracts.
The company subsequently bought imaging, collaboration, records management, and legal practice management technology firms to flesh-out its strategy. Its last acquisition was ECM software provider RedDot Solutions Corp in 2005.
Despite loading up on technology, Hummingbird struggled against stiff competition from larger ECM players likes IBM Corp, EMC (Documentum) Corp, and FileNet Corp.
