Ann: Revocation of Non-Binding Proposal, page-50

Appen suitor walks away from $1.2b takeover offer

By Colin Kruger

Updated May 26, 2022 — 5.30pmfirst published at 10.10am

Shares of former tech darling Appen are expected toplunge on Friday after the company told the ASX its suitor Telus has walkedaway from a $1.2 billion takeover bid just hours after it was revealed. It setsup a potentially fiery annual shareholder meeting for the company in Sydneythis Friday.

“This afternoon, Telus informed us that they wererevoking their indicative proposal,” Appen said in its statement after theclose of trading late on Thursday. “No reasons were given.”

The provider of artificial intelligence serviceshad only confirmed in the morning that its board was in talks with the Canadiancompany, while also releasing a trading update that flagged revenue for theyear to date is below last year’s and earnings will take a hit.

A trading halt for Appen’s stock was granted at2.15pm, with the shares up more than 29 per cent at $8.27 - compared to theirprevious close at $6.40 - as analysts were weighing up the tentative offer,which was significantly less than what the Telus recently paid for rival AIservices provider Lionbridge.

“This is a hostile and opportunistic bid by Telus,”said Louis Mosmann, a private wealth client and research assistant at KodariSecurities.

Appen said in its morning statement it had receivedan unsolicited, conditional and non-binding indicative proposal from Telus toacquire the company via a scheme of arrangement at a price of $9.50 a share - a48 per cent premium to the stock’s most recent closing price.

Its shares soared as much as 35 per cent to a highof $8.64 after the announcement. The stock had been trading above $10 inFebruary and above $40 in August 2020.

‘This is a hostile and opportunisticbid by Telus.’

Appen’s board indicated in the early statement ithad engaged with Telus to solicit a higher offer and cautioned that there wasno certainty that the talks would result in a deal.

Analysts said the offer appeared to undervalueAppen compared to what Telus recently paid for Lionbridge, with Macquariesaying the bid represents a discount of up to 50 per cent on the previousdeal’s earnings multiples.

RBC Capital’s Garry Sherriff said that applying theLionbridge acquisition multiples to Appen would imply an equity value of around$1.7 billion, although he noted the previous deal had been done in a morefavourable market.

“The material market de-rate over the past sixmonths, particularly in the technology sector, suggests the higher historicaltransaction multiple levels are not appropriate in the current environment,” hesaid.

Citi’s Siraj Ahmed said Telus “could extractsignificant cost synergies” from owning both Appen and Lionbridge.

Appen makes most of its money from crowdsourcing aglobal workforce of a million people that do the low-level grunt work for techgiants such as Facebook, Google and Amazon. The workers teach computers torecognise basic images and speech, laying the groundwork for the development ofAI