NetManage Says No Thanks to Buyout Offer, Again

Published: November 27, 2006

by Timothy Prickett Morgan

Midrange and mainframe connectivity software maker NetManage has turned down a slightly sweetened offer to be acquired by two of its current investors.

Back in September, two current investors in NetManage--Riley Management and Zeff Capital Partners--offered to pay $5.25 a share or about $42 million to buy the remaining 85 percent of NetManage's shares that the two firms do not already own. Immediately following the announcement, NetManage's shares spiked to this level, and the company said that it was not interested in the offer. On November 7, Riley Management and Zeff Capital Partners raised their bid to $5.50 a share, and last week, NetManage let the offer expire.

"In light of NetManage's challenging operational condition, we believe our offer to acquire the outstanding shares of NetManage, not already owned by us for $5.50 per share, was an excellent opportunity for shareholders to realize a premium for their shares at a fair price," the two investor companies said in a statement. "We have come to the conclusion that the existing Board of Directors is not interested in selling NetManage even at a favorable price. We have therefore decided not to extend our offer."

Considering that NetManage has a market capitalization of $47 million even after the second offer was turned down and had $28.4 million in cash at the end of September, the slightly revised $44 million bid seemed a bit stingy considering that the net cash the two investors would have to shell out was a mere $15.6 million. Depending on how you want to do the math, just taking away the cash from NetManage's market capitalization would have put a price tag at closer to $18.6 million. NetManage had sales of $43.4 million and a profit of $2.9 million in 2005, and in the first three quarters of 2006, sales at NetManage added up to $27.9 million and a net loss of $1.6 million.

With the new Attachmate, which is the result of the combination of Attachmate, WRQ, and NetIQ by private equity firms that bought these companies, being much larger and backed by a much bigger stack of capital, you would think that NetManage would be trying very hard to find an equity partner. But, the company is either not interested or is holding out for a much higher price.

"NetManage has carefully considered the expression of interest it has received and considered the best way to maximize stockholder value," explained Zvi Alon, NetManage's chairman, chief executive officer, and president. "NetManage has determined this is best done by continuing to focus on its ongoing operations and performance and not on a conditional request to negotiate an acquisition at an inadequate price."

NetManage is located in Cupertino, California, and has over 10,000 customers. Like many other host connectivity and middleware makers, it has staked its claim in the service oriented architecture space, and seems inclined to ride up the SOA wave. The odds favor some private equity firm that also wants to ride up the SOA wave to come in and give NetManage an offer that it will not refuse.

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