Pepsi bottlers trade above bids; SumTotal studies new offer; Vignette soars on buyout offer

By Cristal Cody

Tupelo, Miss., May 6 - Some investors may be disappointed in any revised bids from PepsiCo, Inc. for its two largest bottlers, an analyst said Wednesday.

Shares of Pepsi Bottling Group Inc. and PepsiAmericas Inc. continue to trade at more than an 8% premium to the bids from PepsiCo, but any increased offers are likely to be conservative, the analyst said.

In other deals, private equity firm Vista Equity Partners Fund III, LP increased its offer to $4.50 a share in cash to acquire SumTotal Systems, Inc., up from the $3.25 a share cash offer the firm made last month.

SumTotal may have to accept the offer over its already agreed-to buyout by Accel-KKR LLC, assuming the terms are the same, an analyst told Prospect News on Wednesday.

Also on Wednesday, Open Text Corp. said it will acquire web content management vendor Vignette Corp. in a $310 million transaction.

The buyout is a great deal for Vignette but not so great for Open Text, an analyst told Prospect News.

Meanwhile, stocks closed up on Wednesday.

The Dow Jones Industrial Average added 101.63 points, or 1.21%, to close at 8,512.28.

The Standard & Poor's 500 index gained 15.73 points, or 1.74%, to end at 919.53, and the Nasdaq Composite index rose 4.98 points, or 0.28%, to 1,759.10.

PepsiCo offers

PepsiCo offered cash and stock valued at $29.50 per share for Pepsi Bottling and $23.27 per share for PepsiAmericas, which represented a 17% premium over the companies' closing stock prices the day before the offers were announced on April 20.

On Monday, Somers, N.Y.-based Pepsi Bottling rejected the offer and adopted a stockholder rights plan.

PepsiCo spokesman Jenny Schiavone told Prospect News the company had no comment on the rejection.

Minneapolis-based PepsiAmericas has said it is reviewing the bid.

PepsiCo's offer is contingent on the buyout of both bottlers. The soft drink maker currently owns 33% of Pepsi Bottling Group and 43% of PepsiAmericas.

The $6 billion deal would give Purchase, N.Y.-based PepsiCo 80% of the distribution of its North American beverage volume.

An analyst said Wednesday that a fair bid price is $31.90 a share for Pepsi Bottling and $25.10 a share for PepsiAmericas.

"Although revised bids are likely, PepsiCo is likely to be conservative, and a higher offer could come in at a discount to the current trading price, or Pepsi could decide to pursue an alternative transaction," the analyst said.

Pepsi Bottling's stock added 29 cents, or 0.91%, to close Wednesday at $32.05, while PepsiAmericas shares rose 33 cents, or 1.33%, to $25.20.

PepsiCo shares fell 1 cent, or 0.02%, to $49.72.

SumTotal's new bid

SumTotal Systems' board accepted a $3.80-a-share cash buyout on April 24 from private equity firm Accel-KKR.

SumTotal said in a statement Wednesday that the board will review Vista Equity Partners' revised proposal.

The offer from Menlo Park, Calif.-based Accel-KKR is valued at $124 million and represents a premium of 89% over SumTotal's closing share price on April 3, the last day of trading before Vista Equity Partners made its first offer.

Private equity firm Vista Equity Partners is SumTotal's largest shareholder with about 13% of outstanding shares.

Vista Equity Partners' revised offer values the Mountain View, Calif.-based software solutions company at about $146 million.

"Vista believes that our proposal is in all respects superior to the terms of the company's existing merger agreement," Robert F. Smith, managing principal of Vista Equity Partners III, LLC, said in a statement.

Discovery Group, a Chicago-based merchant banking firm with 9.80% of SumTotal's outstanding shares, wants SumTotal's board to accept the offer.

"We urge the board to remain open to any and all competitive alternatives. However, we do not find Accel-KKR's previous offer to be competitive at this point," Dan Donoghue, managing partner at Discovery, said in a statement on Wednesday.

Accel-KKR representatives did not have an immediate response when contacted by Prospect News.

The Accel-KKR agreement contains a provision that allows SumTotal to solicit alternative proposals for 31 calendar days. Vista Equity Partners said a "go-shop" period also is included in its offer.

Kevin Liu, an analyst with B. Riley & Co., Inc., said in an interview Wednesday that Vista's increased offer is fair, but investors are betting on a higher bid.

"If you look at the stock price, the market thinks there is going to be some competition in terms of a counter offer from Accel-KKR or someone else stepping in," Liu said.

"It is fairly possible Accel-KKR could come in with a higher offer, but we look at $4.50 and see it as a fair valuation," he said. "In normal times, I could see a higher valuation, but given where we are today and the valuations taken place within this past year, the range is probably about right in terms of what would be offered."

SumTotal shares climbed 72 cents, or 18.65%, to close Wednesday at $4.58. The stock has traded from $1.24 to $5.15 over the past year.

Vignette, Open Text deal

Shares of Austin, Texas-based Vignette soared 34.26% to close up $3.09 at $12.11 on Wednesday's buyout offer from the Waterloo, Ont.-based corporate software company.

Under the deal's terms, Vignette shareholders will receive $8.00 in cash plus 0.1447 of an Open Text share for every Vignette share.

The proposal values Vignette at $12.70 a share with a 41% premium, based on the stocks' closing prices on Tuesday.

Vignette shares have traded from $5.69 to $13.97 over the past year.

Mark Schappel, an analyst with the Benchmark Co., LLC, told Prospect News on Wednesday that the deal is "great for Vignette, I'm not sure for Open Text."

"Vignette shareholders are cheering this all the way to the bank," he said. "They have been so beaten down over the last year or two, they would welcome the deal."

However, holdings by Open Text investors will be diluted, which is why the company's stock fell $1.61, or 4.95%, to close Wednesday at $30.89, Schappel said.

"If I'm an Open Text shareholder, I don't like this deal," he said.

While Open Text will pay $8.00 a share in cash for SumTotal, it will receive $143 million, or $6.33 a share, in cash back with Vignette's short-term cash on its balance sheet, Schappel said.

"This is really a financial deal for Open Text," he said. "We're concerned that management may use the acquisition to mask near-term organic revenue growth issues."

The deal must be approved by Vignette shareholders and receive Hart-Scott-Rodino antitrust clearance.

The transaction is expected to close in the second half of the year.

John Shackleton, president and chief executive officer of Open Text, said on the company's earnings conference call after the markets closed on Wednesday that Vignette is a "natural add-on to our organization."

The company has a "strong customer base and very strong brand names in the web content management," Shackleton said. "We can cross-sell some of our other products to those key customers."

Mentioned in this article:

Open Text Corp. Nasdaq: OTEX

PepsiAmericas Inc. NYSE: PAS

Pepsi Bottling Group Inc. NYSE: PBG

PepsiCo, Inc. NYSE: PEP

SumTotal Systems, Inc. Nasdaq: SUMT

Vignette Corp. Nasdaq: VIGN

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