Shortly after I wrote about Nuance Communication’s (Nasdaq:NUAN) buyout offer for Zi Corp. (Nasdaq:ZICA), Zi Corp.’s board came out with a press release reprinting the offer letter and stating that “The Board is considering the proposal and does not have any comment with respect to the proposal at this time.”
The consideration didn’t take long. Late Friday night — when all cowards issue press releases — ZICA announced:
Zi Corporation (Toronto:ZIC.TO - News)(ZICA - News)(”Zi”) today announced that its board of directors (the “Board”) has declined to enter into negotiations with Nuance Communications Inc. (”Nuance”) for a cash offer for Zi shares at a price of US $0.80 per common share (the “Nuance Proposal”).
In reaching its decision, the Board consulted with Ridgecrest Capital Partners, Zi’s financial advisor engaged to assist in evaluating the Nuance Proposal, and Zi’s other advisors, and the Board concluded that the Nuance Proposal does not recognize the full value of Zi.
You don’t have to be a philosopher king to catch the logic error in that press release: because Zi did not agree that the initial offer recognized the full value of the company, it refused to negotiate. But if Zi truly wanted a full value offer, what better means to that end than by asserting its position in negotiation? Its outright refusal to deal suggests that management is more concerned with retaining control than serving shareholder interests.
Nuance appears undeterred by Zi Corp.’s initial rejection. Today Nuance issued its response:
“Zi’s refusal to negotiate is perplexing and inappropriate given the compelling premium our proposal represents to Zi’s market price and the liquidity opportunity it will create, especially in light of the disappointing financial performance and cash outlook Zi reported last week,” said Paul Ricci, chairman and CEO of Nuance. “We continue to believe in the merits of our proposal for Zi shareholders and remain committed to pursuing a transaction. In fact, it is hard to imagine that the Zi board’s unwillingness to negotiate with Nuance and to provide information that would support a basis for a higher offer is consistent with the Zi board’s fiduciary duties to act in the best interests of Zi and its shareholders.”
Nuance remains confident that its US $0.80 per share cash proposal represents full and fair value for Zi. However, Nuance would welcome, and believes it is incumbent upon Zi to provide, any additional information that supports the Zi board’s contention that Nuance’s proposal does not fully value Zi Corporation. Such data is not readily apparent from available public information, including the information provided by management on its August 14 earnings conference call.
As previously announced on August 14, 2008, Nuance submitted a proposal to the board of directors of Zi to acquire Zi for US $0.80 per common share in cash. Nuance’s proposal represents a 150% premium over the closing price of Zi common stock on August 13, 2008, the last trading day prior to public announcement of the proposal, more than a 125% premium over the average closing price of Zi common stock for the 20 trading days prior to public announcement of the proposal and more than a 100% premium over the average closing price of Zi common stock for the 60 trading days prior to public announcement of the proposal.
My take: I still believe shareholders would benefit from a deal with Nuance at a slightly higher price (and I put my money behind that proposition by purchasing ZICA shares Friday). As a standalone company, ZICA is likely to continue bleeding cash and destroying shareholder value.
DISCLOSURE: Long ZICA
