Rivverdeep chief executive Mr Barry O'Callaghan's future may depend on the fate of his management buyout bid for the company.Sources familiar with the company warned that the bid would have to value the company realistically.
"We do not have to accept a bid from Mr O'Callaghan or Mr O'Callaghan himself," said the source, who indicated there was concern at the way Mr O'Callaghan had highlighted recently that the company was the target of short selling.
This had the effect of further driving down the price, according to market sources.
If a bid is not forthcoming or fails to achieve the necessary support, there is speculation that Mr O'Callaghan may have to leave the educational software publisher where he is also chairman.
Stockbroker Goodbody yesterday placed a fair value price of €2.27 on the Riverdeep shares, which would value the company at €547 million. Goodbody analyst Mr Gerry Hennigan set the price on a multiple of 10 times projected earnings for 2003, which he recently reduced to 22.7 cents per share from an earlier forecast of 27 cents.
The figure is fractionally ahead of the €2.23 at which IBM sold a third of its Riverdeep stake at the end of August. It is considered unlikely to accept a lower price as are those investors who took up both those 5.2 million shares and Gores Technology's 11.7 million shares in a placing at the time.
In a separate note, Merrion Stockbrokers said that, while a normal stock rating would imply a price of €3.50 a share, the recent €2.23 deal should provide a "meaningful benchmark for any bid".
Merrion, which has been highly critical of the company's transparency and communication in recent times, said it was up to the management team to deliver now on the "strident assertions" that the business had been undervalued, a clear signal that the market would examine closely the attitude of the board to any offer forthcoming from Mr O'Callaghan.
"Shareholders will now look to the independent directors to ensure that the real value is delivered," writes Mr Rory Gillen.
Mr O'Callaghan, who holds around 5 per cent of the company, is considered unlikely to be able to muster a meaningful bid without the support of key shareholders - in particular founder Mr Pat McDonagh, who still holds 21 per cent of the company and took 146 million out of the company in June last year when he reduced his holding from 38.7 per cent to 24.4 per cent.
Sources in the market accept that Riverdeep has been the subject of short-sellers driving the price down but insist the company has "been playing to the shorts" with the paucity of information released about recent acquisitions and its refusal to take questions at a crucial conference call last week that sent the shares into freefall.
People close to the company insist that Mr O'Callaghan has been assiduous in keeping institutions informed of the company's progress and that Riverdeep is now a fast-growing and profitable publisher, not a "technology play" as it is being seen in certain sectors.
