(Reuters) – The second largest shareholder of SumTotal Systems Inc (SUMT.O), which is currently at the heart of a bidding war between Accel-KKR and Vista Equity Partners, said it would not be surprised to see the “bid increase somewhat from this point”.
“The reason they are rebidding for the No. 1 market share player in human capital management business and enterprise software” is because SumTotal provides exceptionally good value for an acquirer at current depressed share levels, Dan Donoghue, Managing Partner of Discovery Group, told Reuters.
SumTotal shares, which hit a 52-week high of $5.15 on July 24, were trading at $2.01 before Vista’s first bid on April 6.
The latest offer from Vista, SumTotal’s largest shareholder, stands at $4.85 a share, while Accel-KKR’s bid stands at $4.80 a share.
SumTotal, which has agreed to Accel-KKR’s last bid, has till Tuesday to negotiate with the firm for a better deal. [ID:nBNG452730]
Discovery Group is, however, concerned about the breakup fee under SumTotal’s merger agreement with Accel-KKR, which it feels would dilute the amount shareholders would get.
Both Accel-KKR and Vista Equity’s latest bids include a breakup fee of $6.67 million. Accel-KKR prior agreement with SumTotal had included a breakup fee of $3.1 million to $4.95 million.
“The increase in the breakup fee puts Vista at a disadvantage because everytime Vista bids, it has to cover KKR’s breakup fees,” Donoghue said.
Vista’s proposed breakup fee is not too much of a worry since no deal has been signed with Vista yet, he added.
“It appears to us that the board and management favor KKR in the way that they have managed this process and that is somewhat bothersome,” Donoghue said.
Discovery Group, which holds an about 10 percent stake in SumTotal, does not want a breakup fee to be included in either proposal, and instead wants the money to go to shareholders.
“We don’t necessarily support one party or the other, but all bidders for the company should be welcomed into the process and treated equally,” he said.
SumTotal shares closed down 2 cents at $4.85 Friday on Nasdaq. (Editing by Himani Sarkar)