Shares for Appen [ASX:APX] have fallen over 20% today, as Telus revokes its takeover offer.
And just like that…a $1.2 billion takeover offer is unceremoniously off the table.
And Appen can’t even reach its would-be suitor to find out why. Telus is giving it the proverbial cold shoulder.
As we covered yesterday, Canadian firm Telus International lobbed a bid to acquire Appen for $1.2 billion.
But when Appen disclosed the existence of Telus’s proposal yesterday morning, it also tacked on a disappointing trading update, admitting revenues are expected to be ‘materially’ lower.
That may have been enough to spook Telus, who revoked its offer without providing Appen an explanation.
In late afternoon trade on Friday, Appen shares were down 22%, all but erasing the optimism of yesterday:
Source: Tradingview.com
Appen’s proposal revoked by Telus
Late on Thursday afternoon, Appen had to pour cold water on a takeover bid it announced only hours earlier.
In a terse note, Appen admitted that Telus had revoked its non-binding proposal to acquire the AI data services firm.
It seems that the revocation surprised Appen.
The company was expecting Telus to execute a confidentiality and standstill agreement ‘imminently’.
Instead, Appen received notice the deal was off.
But that’s as much information Appen got.
Appen admitted that ‘no reasons were given’ for the revocation.
Appen’s chair Richard Freudenstein was perplexed:
‘Yesterday afternoon Telus sent us a letter that indicated they were revoking their offer, without providing any rationale or explanation.
‘We sought to reach out to Telus through their advisers but have not been able to establish contact.’
For its part, Telus told The Australian Financial Review on Friday:
‘We maintain a very healthy and robust M&A pipeline, and at any given point in time, our company is in various stages of due diligence with potential targets.
‘We are a selective acquirer, and as such we engage in a robust evaluation of all target companies.’
Appen’s ill-timed annual general meeting
In bad timing for Appen management, Telus’s withdrawal of its takeover offer coincided with Appen’s annual general meeting.
Investor anger was palpable.
One shareholder was blunt enough to inquire whether the management team would resign.
In response, Appen chair Richard Freudenstein said he believed the company has a ‘very, very strong and capable executive team that’s ready to drive this company forward through the next few years.’
But Mr Freudenstein admitted the company is not where shareholders hoped it would be:
‘I understand that shareholders are very unhappy with where the share price is today.
‘The Board and management acknowledge that some areas of our business have not delivered to their full potential.
‘We also acknowledge the concern of some investors about not providing near-term guidance as we are focused on our long-term strategy.’
Appen was eager to refocus attention on the company’s growth strategy, stating that it remains a market leader.
APX shares outlook and regroup
Appen said it plans to ‘grow and diversify’ revenue by reaching a wider customer base, targeting the government sector, enterprise, and China.
It will also be focusing on its technology and product innovation as the role of AI changes.
Appen said it plans to double 2021 revenue (US$447 million) by 2026 and achieve an EBITDA margin of 20%.
Appen’s share price performance highlights a tough period for tech and growth stocks.
Rising interest rates are making durable profitability a bigger concern than in prior years.
For some, this may be a scary time.
Bearish sentiment, hawkish central banks, fears of recession…
But opportunities can arise in times such as these…if you know where to look.
Our small-cap expert, Callum Newman, recently laid out his strategy for digging up ‘left-for-dead’ stocks that are likely to face a revival.
Find out more about Callum’s ‘grave-dancer’ stocks here.
Regards,
Kiryll Prakapenka,
For Money Morning
