Neoga Advisors

By Pierr Johnson

Private Equity investors are set to capture yet another publicly traded software company. Websense has announced that it has achieved a definitive agreement to be acquired by Vista Equity Partners for $24.75 per share in cash. A deal had been rumored for some time and it indeed comes “after detailed discussions with several potential acquirers,” as the company press release states. Total consideration approximates $1 billion and the per-share price represents premiums of 29% and 53% over the prior close and 60 day trading average, respectively.  The Board of Directors unanimously recommends stockholders tender their shares, though the parties agree that, upon stockholder approval, they will complete the deal through a one-step merger should they fail to achieve the minimum tender condition.

Hum . . .  One-step merger? Minimum tender condition? Into the finer points of M&A we thus go!  Yes, acquisitions are generally achieved in a one- or two-step process, from a legal perspective, depending on a variety of factors less relevant here. More important here, however, is the Minimum Tender Condition. It is simply the minimum number of purchased shares required to consider the tender successful and it is generally specified in the acquisition agreement and prospectus.  Logic dictates that it must include at least 50% of the shares outstanding and it is generally set to a higher level that, to our knowledge, has yet to be divulged for this transaction.

That the parties have a contingency for this outcome suggests the possibility that a significant number of shareholders intend to withhold their shares. Indeed, shareholder litigation firms have pounced with even greater than normal urgency, alleging the Board failed to maximize consideration for all shareholders.  That said, failing a Minimum Tender Condition happens in the deal world from time to time, prompting the parties to either lower the threshold or raise the inducements. It will be interesting to see this unfold. Analysts preclude the likelihood of alternative offers. That said, we suspect the path to close can be delayed, at best.

So what gives?  It is hard to say based on the available information. At roughly 2.4x out-year revenues, the deal seems fairly priced. Some potential litigants claim the deal deprives investors of enjoying the upside indicated in bookings trends with the last earnings release, which sent the stock up sharply. This is surely true.  In any event, more information will become available with filings. We have some sources to check as well. It is an intriguing situation and there seems to be a possibility of a higher bid. Stay tuned. We will keep you posted as things develop.