Software AG boasts one of the most boring corporate names in a technology sector ever noted for the mercurial brilliance of its pun. But the dispute over the sale of the German business software group is far more compelling. The largest independent shareholder is kicking up a stink over the board’s reluctance to commit to a higher bidder.
US buyout group Silver Lake has offered 2.6 billion euros. British fund manager Schroders, which owns 8% of Software’s shares thinks This and also Bass. After all, Bain has taken a non-binding approach worth up to €2.9 billion, via its Rocket Software portfolio company.
Schroders mutters darkly about conflicts of interest. Reflecting a longstanding relationship, Software AG president Christian Lucas is a director of Silver Lake. However, he was barred from involvement in the committee deliberating rival bids.
Software AG’s board says Silver Lake bid is more likely to succeed. While both offers are cash, Silver Lake has done its due diligence and is likely to have the necessary funding.
But Bain, as another major US buyout group, should easily be able to overcome all of the same hurdles.
The shares are trading above Silver Lake’s offer, suggesting the market is expecting a firm offer from Bain. If he secures a sizable majority, he may be able to merge the business with Rocket. Nonetheless, it would still be necessary to negotiate Germany’s complicated stakeholder protection rules.
Silver Lake controls 35% of the shares. These include a stake acquired in the market plus shares from a deal concluded with the largest holder, the Software AG foundation, controlled by Software AG founder Peter Schnell.
The size of Silver Lake’s stake means that a competing takeover bid by Bain, which has a 10% stake, could lead to a deadlock. Neither would achieve the 90% needed to squeeze the other. Under German law, both sides were allowed to dig. Let the game of chicken begin.
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