Information technology group ASG risks an investor backlash today after rejecting a takeover proposal from a US industrial giant after six months of negotiations.
ASG yesterday confirmed speculation aired in WestBusiness last month by unmasking the mystery suitor as Lockheed Martin.
The disclosure came as it also revealed it had rejected the aerospace and defence giant's revised 68ï¿½-a-share takeover proposal as "materially" undervaluing ASG, though the two remained in talks.
The announcement lobbed after the close of the market, with ASG shares finishing unchanged at 46ï¿½.
Lockheed Martin approached ASG in October with a proposed $1.03-a-share offer, a 52 per cent premium to its prevailing share price.
While the two companies and their advisers negotiated, the target also opened talks with other parties which had sounded ASG out over alternative proposals.
Just a week ago, however, ASG said Lockheed Martin had slashed its proposed offer to 68Â¢ a share, revaluing the group at $140.5 million.
There was no public explanation and ASG declined to comment yesterday. However, the revision inevitably reflects a fall in ASG's share price since the negotiations opened and the dilutory impact of its $15.4 million rights issue in October at just 52Â¢ a share.
ASG said yesterday Lockheed Martin's decision had not altered ASG's belief in its outlook or strategy. It cited solid, recurring revenue from its traditional existing managed services business, the strength of its long-term contracts, the new contracts resulting from its push into Internet-based cloud services and the strength of its customer relationships.
The company faces a market retreat today, with investors likely to express their disappointment at the Lockheed Martin rejection by marking back its shares.
However, the revised offer has at least set a floor for the ongoing discussions. And ASG management could argue that the fact the Lockheed Martin has persevered through six months of underlines the strength of its interest and validates the ASG strategy.
Just hours earlier, Oracle provided further support for ASG's cloud strategy, reporting flat third-quarter sales, which were blamed on a drop in hardware sales as its customers switched to cloud services.
Last month, ASG cut 50 jobs and booked writedowns of almost $15 million as it strategically "realigned" the business around cloud computing.
The $14.9 million writedown covered "legacy assets and capitalised contract establishment costs". ASG said it represented a prudent accounting measure that would "de-risk" its balance sheet.The writedowns pulled the company to a $6.7 million loss for the December half.
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