The Australian dollar could be the peacemaker in the takeover tiff for ISS with its biggest institutional shareholder demanding that the US bidder sweeten its offer for the oil & gas IT software developer.
P2ES Holdings is offering 33 cents a share for ISS but Microequities Asset Management, which has increased its stake in ISS to nearly 10% since the offer, sees this as a low ball offer and is holding out for 40 cents a share.
The bid has been backed by the board of ISS and P2ES needs a 75% shareholder majority vote to get the deal pass the finish line.
But the collapse in the Australian dollar could theoretically give P2ES some wriggle room as the $A/$US exchange rate has fallen around 6% since the deal was announced. P2ES probably made the decision to lob a bid several weeks prior when the Aussie was fetching $US1.03.
However, ISS’ chief executive, Richard Pang, is hosing down these hopes. He points out that the lower exchange rate is a double edge sword as it reduces the company’s Australian dollar contracts, and that would negative impact on ISS’ value to P2ES.
"I am not saying it won’t happen, but I don’t see that happening,” said Pang.
Don’t write this option off just yet though. Improving a bid based on currency movements is not unprecedented and the impact of Australian contracts may not be very big.
The big growth potential to integrate ISS software with P2ES solutions lies in North America. Further, I don’t think it will be a hard sell for P2ES to price new Australian or Asian contracts in US dollars given that most of the customers would be generating revenue in $US.