Appen share price crashes 25% after Telus withdraws takeover offer

The Appen rocketship ran out of fuel very quickly. Here’s why…

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Key points

  • The Appen share price is crashing after the AI company's takeover proposal from TELUS International was withdrawn
  • TELUS had tabled a $9.50 per share offer but walked away hours after tabling the proposal
  • No reason was given for the withdrawal of the offer

The Appen Ltd (ASX: APX) share price has come under significant pressure on Friday morning.

In early trade, the artificial intelligence data services company’s shares are down 25% to $6.22.

This compares to the Appen share price pre-takeover offer of $6.40.

Why is the Appen share price sinking?

Investors have been selling down the Appen share price on Friday in response to news that Telus International has withdrawn its takeover proposal.

In case you missed it, on Thursday, Canada’s Telus International made a $9.50 per share takeover proposal. Telus International is the owner of one of Appen’s key competitors, Lionbridge.

Its offer represented a 48% premium to Appen’s last close price and valued the company at approximately $1.2 billion.

And while Appen was keen to engage with Telus International, it wasn’t overly keen on the price offered. Management explained that it was “in discussions with Telus to seek an improvement in the terms of the Indicative Proposal.”

But rather than improving the offer, Telus walked away immediately from the table, taking its proposal with it.

Why did the takeover proposal collapse?

Unfortunately, Telus walked away from takeover talks without comment, which isn’t very helpful.

However, it is worth noting that both companies were in the process of signing a confidentiality agreement prior to the takeover news leaking to the press. It is therefore possible that Telus wanted to keep talks private and has walked away now they have become public.

At its annual general meeting (AGM), management commented:

As you would be aware, details of their proposal leaked just prior to the AGM. As a result of the loss of confidentiality, we were required to disclose the proposal. Yesterday afternoon Telus sent us a letter that indicated they were revoking their offer, without providing any rationale or explanation. We sought to reach out to Telus through their advisers but have not been able to establish contact.

Alternatively, Telus may have been alarmed by Appen’s poor performance so far in FY 2022.

As no material non-public information had been provided to Telus, it will have seen Appen’s trading update at the same time we did yesterday. And it wasn’t pretty.

That update revealed that Appen’s year-to-date revenue at the end of April was lower than it was during the prior corresponding period. In light of this, the company expects its first half earnings before interest, tax, depreciation and amortisation (EBITDA) to be “materially lower than the prior corresponding period.”

Telus may believe its offer was too generous given this abject performance and therefore withdrew it.

Potential second strike at the AGM?

In other news, Appen is holding its annual general meeting today. Last year, the company’s remuneration report was given its first strike by angry shareholders. Almost 50% of votes were cast against it.

If shareholders deal the report a second strike today, it could lead to a board spill. This will make it a very interesting vote and one to keep an eye on.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Appen Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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