Cinnober Shareholders to Mull Revised Nasdaq Offer

Nasdaq has boosted its offer for Cinnober Financial Technology after failing to reach a critical threshold of shareholder support, which values the Swedish firm at around $220 million.

Under the terms of the revised offer, Nasdaq will pay SEK 87 ($9.62) in cash for each share, and SEK 121 ($13.37) in cash for each warrant. The deadline for acceptance has also been extended until January 9, 2019. Under the terms of the agreement, the deal must gain approval from 90 percent of shareholders.

Initially, Nasdaq had offered SEK 75 ($8.29) per share and SEK 85 ($9.39) per warrant, with a deadline of December 14 for shareholders to tender their holdings to the deal. However, a number of investors said that deal undervalued Cinnober, which supplies post-trade software to a number of leading global exchanges across asset classes, and has been expanding its surveillance offerings after its May 2017 acquisition of Ancoa.

Cinnober had been struggling with the performance of certain business lines and the departure of CEO Veronica Augustsson in the first half of the year, following a weak 2017 report that saw the firm post a loss of SEK 97.6 million ($10.7 million). Peter Lenardos, a former banks analyst at RBC Capital Markets, took over the reins in August and has implemented a cost-cutting plan, which has seen the cost base reduce by 20.6 percent quarter-on-quarter.

“Nasdaq is acquiring a company that is in much better financial shape than it first thought, with good revenue momentum and a lower cost base, in addition to no funding requirements,” says Lenardos. “Thus, in my opinion, the revised offer is warranted, and I also believe it should be accepted by shareholders as it represents the crystallization of shareholder value in cash.”

Potential problems with some shareholders had been on the horizon since the two companies first announced the deal, with investor Invium and several others speaking publicly about the price being too low. However, sources in both firms indicate that disagreement has not stemmed from Nasdaq’s potential ownership of Cinnober—rather, it has been fixated on a perceived undervaluing of the company.

A Nasdaq spokesperson adds that the offer represents “full and fair value” for the company, and that this was indicated by Cinnober’s largest shareholders accepting the bid.

Another potential hurdle arose in December, when the UK’s Competition and Markets Authority (CMA) announced that it would be investigating the deal for possible antitrust concerns. However, in its revised offer, Nasdaq took the unusual step of removing its caveat that the deal would only go through if regulatory clearances—such as the CMA investigation, which is due to report by February 9 on whether it will instigate a further investigation, known as a phase-two inquiry—are met.

People familiar with both Nasdaq and Cinnober’s thinking say that this demonstrates a degree of confidence that the CMA will not choose to refer the deal for further scrutiny.

As for whether the enhanced price that Nasdaq is paying for the vendor may, in turn, cause it to revise its plans for Cinnober once the acquisition is completed, the exchange remains tight-lipped.

“With the increased bid, we still expect the transaction to meet our ROIC and accretion targets,” the spokesperson says. At the time of Nasdaq’s announcement, over 80 percent of investors had agreed to the deal.