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  • BY: Andrew Hore |
  • POSTED: 16/11/2008 |

Membership software provider Gladstone has issued its bid defence document.

The board is still rejecting the 25p a share bid from Constellation Software Inc, which it argues is inadequate. Gladstone has yet to see the full benefits of its investment in its core membership software and its newer education business.

Constellation has 28.8% of the shares and earlier in the year it tried to obtain a seat on the Gladstone board. Constellation is an acquisitive business.

Gladstone says that three of its largest shareholders, which own 21.2% of the company, have signed letters of intent not to accept the offer.

Gladstone reported an increase in profits from £1.61m to £1.75m on a 4% increase in revenues to £9.55m in the year to August 2008. The profit figure is after £86,000 of costs relating to the attempt by Constellation to get board representation but there were also £521,000 of capitalised development costs.  The growth in revenues has come from the education software business.

At the end of August 2008, Gladstone had cash of £4.58m - equivalent to 9.5p a share - having purchased £982,000 of its own shares. 

The document points out that the bid premium to the market price is lower than in other recent software takeovers.

Using TV programme producer Tinoplois as an example of a software company that has been taken over seems strange - even if it used to own the Hawkeye software business. The fact that its enterprise value/EBITDA bid multiple was much higher than the other examples may explain that. IBS OPENSystems, which has been bought by Capita, might have been a better example.

The outcome of the bid is likely to be decided by the small shareholders. There are around 1,600 shareholders. Their attitude may depend on how much patience they have left with the company - especially if they have been shareholders for a number of years. |The previous management destroyed earnings per share by issuing shares and doing nothing with the cash. That stalled the share price. To be fair, the current management has made progress in the past couple of years.

The first closing date is 21 November.

There is a shareholder helpline on 0844 815 3571. 

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