Riverdeep's founder Mr Pat McDonagh and chief executive Mr Barry O'Callaghan have offered to take the company private at less than half the price shareholders paid to buy the shares when it floated less than three years ago.
The $1.51 (€1.42) all-cash offer compares with a flotation price of $3.33 at the height of the dotcom boom. However, Mr McDonagh and Mr O'Callaghan who between them own more than 25 per cent of the shares, have agreed to accept any rival cash offer pitched at or above $1.67 - a 10 per cent premium to their offer - on condition it is made within the next 31 days. That opens the way to the 50 or so groups approached by independent directors in recent months to make rival bids. Until yesterday's announcement, rivals would have been put off by the presence of the McDonagh/O'Callaghan blocking vote.
The unusual commitment by the management buyout (MBO) team was sought by the company's independent directors but has been welcomed by Mr O'Callaghan.
"I do not want to be seen as abusing my position and stealing the company," he said. "If someone out there can offer more for the company, we will deliver our shares."
Mr Paul D'Alton, chairman of the independent directors' committee, made particular reference to the undertaking. "If that does not encourage a competing bid, we can very well conclude we have done everything we can to determine if there is a competing bid," he said.
The MBO vehicle, Hertal Acquisitions, is also offering a limited share alternative to Riverdeep investors. Shareholders can opt for one Hertal share for every Riverdeep share but the offer will be scaled down proportionally if applications are sought for more than 21.5 million Hertal shares. There are 240 million Riverdeep shares in issue.
The Riverdeep deal is denominated in dollars, with shareholders having to bear the currency risk at a time when the dollar is generally weakening against the euro.
Riverdeep's share price rose yesterday but fell short of the €1.42 offer, closing in Dublin at €1.38, up 23 cents on the day.
Stockbrokers NCB said the offer was disappointing and "opportunistic". "At this price, we would be urging shareholders to vote no and would be looking for someone to come in," said analyst Ms Tricia McEvoy.
Mr Pat Duggan, at Dolmen Butler Briscoe, said he was mildly surprised the bid has come through at the level it has and that it got the blessing of the independent directors.
Announcing the offer, Mr D'Alton said: "The cash offer is recommended to shareholders in the absence of any higher offer coming along.
"There is a substantial premium above the price at the time the offer was indicated and the 30-day period before that. We did also have to take account of the fact that there was not another offer on the table and the sort of operational and financial risks which faced the company."
He said a decision to reject the Hertal bid could trigger a slump in the share price.
Riverdeep is a publisher of educational software with a core market in the US school system. More recently it has become involved in the consumer side of the e-learning business.
