A Truly Weird M&A

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The enterprise software market of the past few years has seen lots of friendly mergers and one impressively hostile takeover. So perhaps it makes some sense that it’s now witness to an entirely new category of takeover attempt that can best be characterized as weird.

What’s weirder is that the company in play, Onyx Software, has already announced its intention to be bought – in a very friendly deal – by a private equity company, M2M Holdings. But that hasn’t stopped would-be suitor CDC Software from pursuing its reluctant bride in a way that seems destined to fail – but not without sopping up some executive cycles and helping put some attorney’s kids through college, and perhaps even killing some software sales in the process.

Onyx’s weird trip started last December, when it received an unsolicited bid from CDC, a Chinese company that previously had bought up two minor companies, CRM vendor Pivotal Software and ERP vendor Ross Systems.

According to filings by Onyx, CDC embarked on a strategy of mixed messages and seemingly bizarre behavior, setting up meetings with Onyx executives and then putting out press releases claiming that Onyx was avoiding CDC. After a few weeks of this kind of behavior, CDC retracted its bid, only to reinstate it in March.

Even at this writing, with the M2M deal looking like it will gain widespread shareholder acceptance, CDC continues its pursuit of a very unwilling Onyx, claiming publicly that the fees Onyx would have to pay to retreat from the M2M deal were “unusually high” and offering to fight the fees in court. Meanwhile, CDC has written to the SEC claiming that Onyx failed to consider other legitimate offers. And so the saga continues.

Something Else Afoot?

While many of us scratched our heads trying to figure out how to parse Oracle’s precedent-setting hostile takeover of PeopleSoft, there’s even more head-scratching necessary to understand the value of Weird M&A in the software business. Like it or not, Oracle followed a time-tested, and obviously successful, strategy that took a page from years of corporate raiding and hostile M&As in other industries. PeopleSoft CEO Craig Conway cried foul more than once, and there’s more than one thing Oracle should have done differently, but by and large the entire process was pretty much by the book, albeit one that never had a chapter about hostile M&A in the software industry.

On the other hand, CDC’s on-again, off-again, back-and-forth strategy seems to lack either precedent or even purpose. Of course, there is always the possibility that something else is afoot. It is important to note that Pivotal, which still operates as an independent subsidiary of CDC, is a major competitor of Onyx with a lot to gain by disrupting Onyx’s sales cycle. And it’s hard to imagine that, with all the uncertainty and threats generated by CDC, there wouldn’t be some disruption to Onyx’s pipeline.

But if we assume that CDC’s real intention is to actually acquire Onyx, the question of why it has gone the Weird M&A route remains unanswered. Hostile M&A in software has a very limited history, but there’s one thing all deals, until Oracle/PeopleSoft, had in common: They were resolved – either with the buyer ceasing hostilities or the target company finding a white knight – within a matter of weeks. The fact that Oracle/PeopleSoft broke the mold and was eventually settled after 18 months doesn’t necessarily mean that that this prolonged battle was worth it to anyone – shareholders and customers alike.

But, if there are only two ways to go – prolonged hostilities, or a quick resolution – what’s next for CDC is the question. Does CDC have the stomach – and the big bucks – to go the Oracle route, knowing that for now Onyx is determined to resist? I doubt it. Oracle is Oracle, a powerhouse in the software industry with deep pockets, a strong history, and Larry Ellison at the helm. Oracle could rewrite the history of the software industry because that’s what big companies do. As often as they can. Little companies like CDC can’t.

The real question is not if CDC will stop its pursuit but when. CDC is no Oracle, and there’s no room for a chapter on taking the Weird route in the M&A handbook. Or any book, for that matter.