Appen Shares Spike on $1.2 Billion Bid

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Artificial intelligence services business Appen [ASX:APX] saw its shares spike 30% before entering a trading halt on news of a takeover bid from TELUS International.

Canadian customer IT services provider TELUS International has lobbed a non-binding indicative proposal worth $1.2 billion for Appen.

TELUS’s offer comes at about a 45% premium to Appen’s current share price, in line with where the stock was trading six months ago.

The bid comes at a time when Appen’s shares are trading well below their 52-week highs.

Prior to today’s announcement, APX shares were down 40% year-to-date:

ASX:APN stock price chart

Source: Tradingview.com

TELUS takeover bid for Appen

Appen today confirmed that Canadian TELUS International has put forth a non-binding proposal worth $1.2 billion.

TELUS’s bid is for 100% of Appen’s shares at a price of $9.50 per share.

TELUS International listed on the Toronto Stock Exchange last year, becoming one of the bourse’s biggest tech listings on record.

Not long after, TELUS acquired one of Appen’s major competitors, Lionbridge, in a successful debt and equity deal.

Appen notified the market its board has ‘carefully considered’ the proposal, which included obtaining advice from its financial advisers.

Appen said it is still in discussions with TELUS to seek ‘an improvement in the terms’ of the indicative offer.

At this stage, no material non-public information has been shared with TELUS.

But Appen did offer the Canadian firm ‘limited business and financial information’ on a non-exclusive basis.

Appen also laid out the factors it will consider when appraising any revised proposal.

The factors included Appen’s ‘global market leading position in the AI data lifecycle sector’ and Appen’s delivery of ‘long-term revenue growth, including 40% annualised revenue growth from 2016-2021’.

Trading update

Appen took the opportunity to also provide a brief trading update.

As of 30 April, Appen’s year-to-date ‘revenue plus orders in hand for delivery’ rose 14%, reaching around US$297 million.

The ‘plus orders in hand for delivery’ was an important factor in the revenue growth.

As of 30 April, Appen’s actual year-to-date revenue was lower than at this time last year.

Appen did not disclose how much lower.

APX did disclose that 1H FY22 EBITDA is expected to be ‘materially lower than the prior corresponding period due to lower than expected revenue.’

APX share price outlook

Appen shares had been hit hard well before this year’s tech sell-off.

APX stock was trading as high as $40 a share in August 2020, before steadily falling ever since.

The fall was precipitated by declining profits, as its biggest tech clients — like Facebook and Google — struggled with global data privacy changes.

The recent tech sell-off has exacerbated the souring mood around Appen and clouded the outlook around its earnings visibility.

Now, the crazy thing about the current climate is that it can offer promising opportunities for the bold and the brave.

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Regards,

Kiryll Prakapenka,
For Money Morning

About Kiryll Prakapenka

Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…

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