Appen suitor walks away from $1.2b takeover offer

Shares of former tech darling Appen are expected to plunge on Friday after the company told the ASX its suitor Telus has walked away from a $1.2 billion takeover bid just hours after it was revealed. It sets up a potentially fiery annual shareholder meeting for the company in Sydney this Friday.

“This afternoon, Telus informed us that they were revoking their indicative proposal,” Appen said in its statement after the close of trading late on Thursday. “No reasons were given.”

The provider of artificial intelligence services had only confirmed in the morning that its board was in talks with the Canadian company, while also releasing a trading update that flagged revenue for the year to date is below last year’s and earnings will take a hit.

Appen’s chief executive Mark Brayan. Credit: Steven Siewert

A trading halt for Appen’s stock was granted at 2.15pm, with the shares up more than 29 per cent at $8.27 - compared to their previous close at $6.40 - as analysts were weighing up the tentative offer, which was significantly less than what the Telus recently paid for rival AI services provider Lionbridge.

“This is a hostile and opportunistic bid by Telus,” said Louis Mosmann, a private wealth client and research assistant at Kodari Securities.

Appen said in its morning statement it had received an unsolicited, conditional and non-binding indicative proposal from Telus to acquire the company via a scheme of arrangement at a price of $9.50 a share - a 48 per cent premium to the stock’s most recent closing price.

Its shares soared as much as 35 per cent to a high of $8.64 after the announcement. The stock had been trading above $10 in February and above $40 in August 2020.

‘This is a hostile and opportunistic bid by Telus.’

Kodari Securities’ Louis Mosmann

Appen’s board indicated in the early statement it had engaged with Telus to solicit a higher offer and cautioned that there was no certainty that the talks would result in a deal.

Analysts said the offer appeared to undervalue Appen compared to what Telus recently paid for Lionbridge, with Macquarie saying the bid represents a discount of up to 50 per cent on the previous deal’s earnings multiples.

RBC Capital’s Garry Sherriff said that applying the Lionbridge acquisition multiples to Appen would imply an equity value of around $1.7 billion, although he noted the previous deal had been done in a more favourable market.

“The material market de-rate over the past six months, particularly in the technology sector, suggests the higher historical transaction multiple levels are not appropriate in the current environment,” he said.

Appen has engaged with a low-ball bid with investors wary of its reliance on tech giants like Amazon and Google. Credit: Bloomberg

Citi’s Siraj Ahmed said Telus “could extract significant cost synergies” from owning both Appen and Lionbridge.

Appen makes most of its money from crowdsourcing a global workforce of a million people that do the low-level grunt work for tech giants such as Facebook, Google and Amazon. The workers teach computers to recognise basic images and speech, laying the groundwork for the development of AI solutions.

Its share price crashed in 2020 after a series of downgrades raised concerns that its five major customers, which account for 80 per cent of its revenue, may be growing less dependent on its services.

More recently, Appen has been caught in the tech downdraft which has shredded the valuations of US and Australian tech stocks which have been trading on much higher valuations than traditional stocks.

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