RDY +21.64%: surged after receiving a takeover approach from Canadian software group TSS, though the board has already rejected the proposal as opportunistic and materially undervaluing the business. TSS initially lodged an off-market bid at $1.75/share before improving its proposal to $2.00/share via a scheme of arrangement, valuing the business at ~$250m.
The bid comes after a difficult period with the stock falling more than 40% over the past year following earnings downgrades, impairments and softer-than-expected growth. TSS has reportedly been pursuing the company for around 18 months and has pointed to operational challenges and missed guidance as part of its rationale for the approach.The shareholder register remains the key consideration with the top five controlling roughly 45% of the company, led by Pemba Capital (~29%), which backed away from the $4.50/share takeover proposal in 2022. While the business is in a different position today, the current $2.00/share offer is unlikely to be an easy sell for long-term holders.
We highlighted RDY as a potential takeover candidate back in early May given its high recurring revenue base, sticky customer relationships and the likelihood that long-term shareholder Pemba was nearing the end of its typical investment horizon. While today’s proposal validates the M&A thesis, after the board’s immediate rejection, the current bid may simply be the opening shot. MM owns RDY in the Emerging Companies Portfolio.
MM remains long and bullish RDY
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