'Disappointed': Key MYOB shareholder gives in to KKR's takeover bid

Accounting software firm MYOB Group's second-biggest shareholder has reluctantly agreed to vote in favour of US private-equity firm KKR's $1.6 billion takeover bid but has declared it is "very disappointed" about the situation.

Manikay Partners owns 16 per cent of the small business accounting firm and had previously told management it believed a takeover offer at $3.40 a share was undervaluing the operation.

We're "better served" to take our money elsewhere, the US hedge fund wrote to MYOB chairman Justin Milne.Credit: David Munoz

On Wednesday Manikay wrote to MYOB to say it planned to vote in favour of the deal, noting "we are better served allocating our capital elsewhere".

"We remain very disappointed that, despite our repeated efforts to convince you otherwise, you failed to change your recommendation in light of the material improvement in market conditions since announcement of the scheme, among other factors," the US hedge fund wrote in a letter to MYOB chairman Justin Milne, which the company released to the ASX on Wednesday.

"We are also disappointed that the disclosures to MYOB shareholders did not fully explain the impact of such improved market conditions on the value of MYOB."

In its annual report last Friday, MYOB told its shareholders that its core strategy of chasing small business customers, enterprise clients and offering payments technology would remain the same regardless of the outcome of the takeover vote.  

The company's growth slowed in the most recent financial year and the company missed a consensus earnings prediction of $489 million. 

In a note two weeks ago, Citi analysts said the company was "well positioned" to leverage growth in the SME cloud software market. It set its target price for the stock to $3.40 to match the offer price.

Manikay, which Bloomberg data showed had bought shares as recently as last month, had been gunning for a price increase by KKR.

Last October KKR initially offered $3.70 per MYOB share but later raised the price to $3.77, prompting the software firm to grant KKR access to its financial records to conduct due diligence. In wake of the sharemarket selldown late last year, KKR then dropped its offer to the current price in December only for the market to again bounce back.

Regrettably, it has become evident that the MYOB chairman and other directors do not share our view of MYOB's prospects and value.

Manikay letter

The MYOB board has unanimously recommended shareholders vote in favour of the takeover offer. In the first week of March Manikay warned the company to reconsider this recommendation considering a market rally since Christmas had meant KKR's offer undervalued the business.

Explaining on Wednesday why it now felt it was better to exit the investment by voting in favour of the scheme, Manikay wrote that its fund managers "continue to believe that MYOB has a bright future and we are even more excited about its prospects now than we were when we first began purchasing the shares more than fifteen months ago.

"Regrettably, it has become evident that the MYOB chairman and other directors do not share our view of MYOB's prospects and value," it said.

MYOB shareholders will vote whether to accept KKR's offer on April 17. A spokesperson for KKR declined to comment on Wednesday. MYOB also declined to comment.

The MYOB share price gained 1.2 per cent on Wednesday, finishing up 2 cents shy of KKR's $3.40 offer price, at $3.38.

with Reuters.