The Appen Ltd (ASX: APX) share price is flying higher on Thursday after receiving a takeover proposal from a company known as Telus International. While most Australians have likely never heard of this inconspicuous Canadian tech company, it has come knocking with a $1.2 billion offer.
However, the Appen board is viewing the $9.50 per share bid as rather opportunistic in the current market. A market where tech company valuations have been severely compressed, irrespective of whether the business is profitable or not.
As such, management has returned to Telus International asking to cough up a better price… and by the sounds of it, they might need to.
Before Appen shares finished trading today, the company requested they be put on ice pending another announcement.
That aside, let's take a closer look at the prospects of an improved price.
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Is there more financial fodder behind Telus?
For starters, is it possible for Telus International to up its offer for ASX-listed Appen? Well, we can't speak in absolutes — but let's dig deeper into this company shrouded in mystery.
To keep it brief, Telus International is a broader version of Appen. Rather than being focused solely on AI training data and annotation alone, the Canadian suitor encompasses digital strategy, consulting, and managed solutions.
Like Appen, Telus is profitable — albeit on thin margins — and free cash flow positive. In the last 12 months, the extensive IT company collected US$109 million in net profits after tax. Meanwhile, the balance sheet at the end of March contained US$161 million in cash and cash equivalents and US$894 million in debt.
In terms of market capitalisation, Telus International is almost nine times the size of Appen. This might all lead investors to think that the suitor has maybe bitten off more than it can chew. But, there is an important piece of information here.
Telus International is owned by A$43.4 billion parent company Telus Corporation, the Canadian equivalent of Telstra Corporation Ltd (ASX: TLS). Therefore, if the need is there, papa Telus might tip in the extra funds if required.
More parties coming to the table
The chances of Telus International needing to up their bid are highly likely if rumours prove to be true.
According to The Australian, there is at least one private equity firm showing an interest in ASX-listed Appen. At the same time, experts are suggesting private equity might wait on the sidelines — hoping the Telus deal falls through.
The thinking is the Appen share price could fall further given Appen advised more disappointing news today. Unfortunately, the profit downgrade adds to an ongoing trend from Appen recently.
