Hibernian Investment Managers yesterday rejected the management buyout offer for Riverdeep. The first institution to take a stance on the bid by the Barry O'Callaghan-led Hertal group, it was not convinced even by the support of Mr Michael Dell's personal investment vehicle.
MSD Capital was described by advisers to Riverdeep's independent directors as a partner of Alchemy, the lead private equity partner in the move by Riverdeep's chief executive, Mr O'Callaghan, and founder Mr Pat McDonagh to take the group private.
However, the group is more accurately the company formed in 1998 exclusively to manage the capital of Dell Computer's chairman and chief executive, Mr Michael Dell, and his family.
MSD invests in both private equity deals, such as the Riverdeep MBO, and in listed companies. In private investments, it targets companies it sees as poised to become long-term leaders in their industries.
At $1.51 (€1.41), it clearly sees value in the investment but the mood among current shareholders is that the price is disappointing.
Hibernian Investment Management chief investment officer Mr Martin Nolan said the present terms were unacceptable to Hibernian.
His stance reflects the mood within the Irish fund management community. ABN Amro analyst Mr Liam Boggan said yesterday that institutions viewed the terms as derisory "especially after the bullish comments all last year from [chief executive] Barry O'Callaghan about the value of the business, which led to institutional investors supporting the placing by Gores Technology and IBM in September at €2.23".
NCB's Ms Tricia McEvoy has also urged investors not to sell, labelling any bid below €2 as "opportunistic".
However, there is some doubt over the likelihood of a rival bid for the group emerging - despite the agreement by Mr McDonagh and Mr O'Callaghan to sell their combined 25 per cent plus stake in the company to anyone offering $1.67 per share or higher, a move that removes the blocking vote that was seen as dissuading potential bidders from approaching the group.
Mr Nolan held out hope that institutions might be able to persuade the MBO vehicle Hertal to raise its offer, but it is committed to a ceiling of €1.66 per share - well below what many fund managers consider a reasonable price.
Looking outside the group, companies including Reed Elsevier and Pearson have been touted as possible bidders.
An acquisition the size of Riverdeep would not present a funding problem; the question is whether the price is seen as offering value.
Reed is an existing investor but interestingly did not move to increase its holding in the placing of shares by Gores and IBM.
The share price rose just one cent yesterday to €1.39 just shy of the existing offer.
Movements in the dollar/euro exchange rate since Friday have seen the value of the deal fall from €1.42 per share to less than €1.41. The deal is denominated in dollars to allow the company avoid the cost of hedging the terms through the takeover process.
The independent directors are meeting institutions over the next few days to explain the structure and rationale of the deal proposed by Hertal. Last night, it emerged that British finance house Taube Hodson Stonex, which owns about 2 per cent of the Riverdeep's stock, has irrevocably accepted the offer.
There was no word from major shareholders Bank of Ireland Asset Management and IBM,which respectively own 9 per cent and 4.5 per cent, although there was speculation last night that IBM was close to accepting the Hertal bid.
The cash bid has been recommended by the independent directors of Riverdeep and, pending any rival bid by February 20th, will be put to shareholders at an extraordinary general meeting where it will require approval by a simple majority.
