Tyro offers four weeks due diligence to Potentia

Potentia and its partners will get four weeks to go through the books of payments operator Tyro in a third opportunity to bid for the business.

A Tyro Payments eftpos machine. Picture: Supplied

Tyro has given its two-time suitor Potentia a third chance to seal the deal, bowing to shareholder pressure and offering the private equity player four weeks to go over the books of the payments company to “develop a significantly improved proposal”.

The Australian-based financiers, along with consortium partners HarbourVest, Cbus, and MLC, had made two previous runs at Tyro but both were rejected.

Potentia first lobbed a $1.27 bid on September 7, before following up with a further $1.60 offer on December 11, but Tyro’s rejected both bids, despite the urging from a key backer.

Mike Cannon-Brookes’ Grok Ventures had previously indicated he was open to selling his 12.5 per cent holding in Tyro for not less than $1.27 a share.

Grok, the largest shareholder in Tyro, is unable to take any action on a competing proposal from another bidder for Tyro unless it comes in at $1.85.

The investment outfit made its displeasure clear at Tyro’s most recent knock-back of Potentia, noting the $1.60 bid came in at 62 per cent premium “to the undisturbed share price”.

“Grok joins a growing chorus of Tyro shareholders who are publicly dismayed at the board’s refusal to engage including Wilson Asset Management, QVG, and Harvest Lane. Together, this represents almost 20 per cent of the register,” the firm said.

“The board has a fiduciary duty to act in the best interests of shareholders, but instead appears to be ignoring them.”

Tyro said its board had engaged with Potentia in relation to a potential change in the company, but its two recent indicative offers “significantly undervalued” the company.

The payments company said the four weeks due diligence period it was offering Potentia would allow it time to “develop a significantly improved proposal and confirm the necessary funding commitments attached to any possible future offer”.

But Tyro noted there was no certainty that a further non-binding indicative offer, or a binding offer or transaction would eventuate.

“The Tyro board will continue to act in the best interests of shareholders as a whole and will consider change of control proposals that represent fair value for shareholders,” the company said.

Shares in Tyro jumped 4 per cent to $1.56 on Friday, trading just cents below the most recent bid and giving the group a market capitalisation just over $805m.

JP Morgan equity research executive director Bob Chen said he was unsurprised Tyro was opening its books to Potentia.

“We always suspected there may be more activity,” he said.

Analyst consensus for Tyro puts a 12-month price target of $1.71 price on the fintech, but opinions are split across the industry.

In a recent note Morgan Stanley said $1.60 was the base case for the business but $2.50 was possible under a “bull case” scenario for Tyro.

“The probability of achieving our bull case has increased as a result of the higher first-half earnings and a lift in full-year FY23E guidance,” Morgan Stanley analysts noted.

Tyro, which was founded in 2003, has seen several swings in its share price on the back of Potentia’s offers and news Westpac was also taking a look at the company.

Westpac, which announced on October 18 it was in preliminary discussions to acquire all of Tyro, pulled its interest on December 12, one day after Potentia raised its bid.

The payments company upgraded its earnings guidance on January 16, on the back of customer growth and a lift in transaction values.

But Tyro warned it could be facing a softer period ahead as interest rates bite.

Tyro’s new chief executive Jon Davey warned the company was taking a “cautious approach” around softer consumer spending, which drives much of Tyro’s margins.

Mr Davey, who took on the top job after Star Casino poached Tyro’s former chief executive Robbie Cooke, kicked off a round of cost cuts in October in a bid to pull $5m out of the 2023 operating cost base.