Germany’s Software AG’s largest outside shareholder said a planned 2.6 billion euro takeover bid by US private equity firm Silver Lake “substantially undervalues the company” and criticized its handling of the sale process by the technology group.
London-based Schroders, which owns 8 percent of Germany’s second-largest business software supplier after SAP, said Software AG’s apparent reluctance to engage with other potential bidders could raise conflict-of-interest issues.
In recent weeks, the German group has been at the center of competition from Silver Lake and rival private equity firm Bain Capital via its portfolio company, US-based Rocket Software.
Software AG’s board recommended Silver Lake’s offer, at €32 per share, despite Bain’s offer of up to €36 per share, saying it offers more certainty than the latter offer. Both are offered in cash.
“This offer does not represent a superior offer and therefore the Software AG board and the independent acquisition committee of the supervisory board are unable to commit,” Software AG said Tuesday of Rocket Software’s offer.
Schroders said in a statement that while the competing bids for the business validate the long-term investment opportunity, “we are surprised that the acquisition committee appears unwilling to engage with potentially higher bids from other interested parties.”
The statement added, “It could be seen as raising potential questions regarding conflicts of interest and whether an appropriate fiduciary process is being followed to fairly protect the interests of minority shareholders.”
Shares of Software AG traded above Silver Lake’s offering price on Thursday at around 34 euros per share, a sign that investors expect a deal will eventually be reached at a higher price.
The company’s executives will hear directly from its shareholders during next Wednesday’s annual meeting.
The competition for Software AG comes as private equity firms are under pressure to employ the large funds they’ve raised in recent years and must navigate a competitive landscape amid a dearth of deals.
Silver Lake first supported Software AG of Darmstadt, Germany in 2021 with an investment of 344 million euros. As part of the deal, two Silver Lake representatives joined Software AG’s board of directors, including Christian Lucas, Silver Lake co-head of Europe, Middle East and Africa, becoming the president of the technology company.
Software AG announced last month that it had entered into an agreement with Silver Lake to go private for €30 per share in cash.
The company also said its largest shareholder, the Software AG Foundation, had agreed to sell a quarter of the company’s stock in Silver Lake.
The Software AG Foundation was founded in the 1990s by Peter Schnell, the co-founder of the company, and holds just over 30% of the shares.
Combined with Silver Lake’s own stock purchases, the private equity firm has now secured more than a 30% stake in the company.
In early May, Silver Lake raised its offer to €32 a share after Software AG said it had received a competing offer. Silver Lake’s latest offering values the company’s capital at approximately 2.4 billion euros; Software AG has a net debt of approximately 230 million euros.
Silver Lake’s improved offer was followed by Bain’s Rocket Software publicly announcing its revised offer of €34 per share, rising to €36 per share if Silver Lake and the Software AG Foundation agree to back the deal by selling their holdings.
Software AG said Silver Lake representatives withdrew and an independent acquisition committee was formed to evaluate the deal.
The company, which last year had revenues of 958.2 million euros, with an operating profit of 178.5 million euros, said it preferred Silver Lake’s offer due to the certainty it offers on financing and to the fact that he knows the private equity group well.
Software AG has held talks with Bain in recent weeks, but doesn’t see the synergies that could be gained from a merger between Rocket Software and its own business, said a person familiar with the matter.
Bain also bought shares, amassing about 10% stake in the company.
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