Near-to-close MYOB and KKR deal runs into turbulence

Following the closure of 60-days go-shop period, shareholder Manikay Partners persuades the accounting software company MYOB Group Limited (ASX:MYO) to re-consider a takeover offer from private equity firm Kohlberg Kravis Roberts & Co. L.P (KKR) placed at $3.40 a share.

Last week, New York-based hedge fund Manikay Partners wrote to MYOB chairman Justin Milne demanding to provide it with the key documents related to the KKR bid along with the independent expert report lodged with the regulator as it believes that KKR offer is exploiting the value of the company.

The disagreement in opinion relates to the KKR acquisition offer under which the private equity firm had initially proposed to acquire the entire shareholding in MYOB Group at $3.70 a share in October. But following the due diligence, KKR lowered its bid to $3.40 a share amid the global financial market meltdown taking place in December last year. Also, it included 60-days window, however, it lapsed on 22 February 2019, for MYOB to look for the superior offer with KKR commitment to sell its existing interest or vote in favour of any qualifying superior offer.

In the letter dated 5 March 2019, Manikay Partners LLC stated that “KKR took advantage of the temporary adverse market conditions in late 2018 to pressure the board to accept a deal at $3.40 per share, a material reduction from the original $3.77 per share offer.”

But in immediate response to Manikay letter, MYOB Group stated that the report by independent expert concludes that the takeover in the best interest of MYOB’s shareholders, reflecting the material momentum in market conditions. The Group further resumed with its stand in favour of KKR offer, stating that it ‘continues to unanimously recommend KKR’s proposal’. The decision also explains the no better offer existing with the company at the end of the go-shop period, i.e., 22 February 2019.

Manikay Partners, run by former Australian Securities Exchange director Shane Finemore, holds approximately 9.9% of MYOB’ issued shares. In its first letter, the hedge fund stated that its investment in MYOB Group illustrates its belief in the company’s long-term potential and its ‘excellent’ management.

The hedge fund flagged the valuation of MYOB Group to over $4.00 per share. The fund believes that the significant rally in the global market since the start of the new year 2019 has brought the financial market to the normal level and it is too such extent “that a sale of the company at $3.40 per share does not reflect a fair and reasonable deal for MYOB’s shareholders.”

The scheme meeting to obtain MYOB’s shareholder approval with respect to KKR’s acquisition offer remains due to be held on 17 April 2019.

In today’s trading session, MYO shares slipped by 0.295% to last trade at $3.380 on 11 March 2019. In the past three months, the stock price shed 3.14% reflecting the recent sell-down by the major shareholder Bain Capital that led the trading speculation.