Shareholders of Apivio Systems (TSXV:APV) should wait for a better deal than the hostile offer from Nuri Telecom, says Haywood Securities analyst Pardeep Sangha.
On January 17, Nuri Telecom Company announced it had launched an unsolicited offer to buy all the outstanding common shares of Apivio at a price of 40 cents a share.
Apivio responded by advising shareholders to wait before taking any action.
“Consistent with its fiduciary duties, the board of directors will carefully review and evaluate the offer,” said independent director Jason Donville. “We are commencing a process to solicit potential alternative transactions that may provide greater value to shareholders, and shareholders should wait for the outcome of that process before making any decision with respect to their Apivio common shares. We have established a special committee of independent directors to evaluate the Nuri offer and manage the value-maximization process. The special committee, together with its legal and financial advisers, will carefully and thoroughly evaluate the full spectrum of alternatives to maximize shareholder value and make a recommendation to the full board of directors of Apivio. The board must caution that such a process will not necessarily result in a transaction.”
Sangha says that while the offer is a significant bump over Apivio’s flagging share price, it’s still not enough.
“Although the offering price is a 51% premium to the closing price on January 16; we believe this offer significantly undervalues Apivio’s current business and future growth opportunities,” he said. “We are recommending that shareholders reject Nuri’s offer, and we are maintaining our BUY recommendation with a 12-month target price of $1.00.”
Sangha says that if Apivio’s stock has had no momentum, the same cannot be said of its business. He points to the company’s recent deal with NEC Japan as evidence.
“We believe the NEC Japan deal could represent an additional $30M in annual revenue over the long term,” he says. “We believe the NEC deal and other recent developments, such as the partnership with Broadsoft and WiFi phone trials, put Apivio on the path to potentially becoming a $100M revenue company with $10M in annual EBITDA. Nuri’s offer values the Company at $21.1M. This represents a P/Sales (TTM) multiple of 0.37x, based on Apivio’s TTM revenue of $57.6M and most recently reported basic shares outstanding of 52.8M. This offer is not subject to any financing conditions and Nuri will fund the offer from available cash resources. The takeover will require 66.7% shareholder approval and is open for acceptance until May 2, 2017. Nuri has entered into lock-up agreements with various shareholder of Apivio representing approximately 10.7% of the common shares outstanding. Apivio’s management and board are now reviewing this offer, but we believe they may choose to seek alternative higher offers.”
Disclosure: Apivio is a sponsor of Cantech Letter and Editor Nick Waddell owns shares of the company.