Onyx rejects takeover by CDC

Minutes after the board of Onyx Software said it had rejected a takeover bid by Hong Kong-based CDC Corp. on Monday, CDC retaliated by saying it had filed a lawsuit against Onyx in Seattle.

The moves follow a hostile-takeover attempt that CDC began Wednesday, appealing directly to shareholders to sell stock to CDC for $5 a share, topping the current proposal from M2M Holdings to acquire Bellevue-based Onyx for $4.80 a share.

Onyx's seven-member board unanimously voted to recommend that shareholders reject CDC's offer. Uncertainties in the offer, including the availability of cash and the timeline for completing a transaction, are not offset by its higher price, Onyx said Monday.

In June, the board signed an agreement to be acquired by M2M Holdings, a company jointly owned by private-equity firms Battery Ventures and Thoma Cressey Equity Partners, in an all-cash transaction valued at $4.80 per share or approximately $92 million. Onyx said it will work to finish the deal following a special shareholders meeting Aug. 1 in Bellevue to vote on the M2M proposal.

That agreement requires Onyx to pay investors in Indianapolis-based M2M a $4.5 million break-up fee if it backs out.

The contentious battle over the future of the Bellevue software company began with an unsolicited offer from CDC in December. Onyx makes customer relationship-management software and sells to medium and large companies. It has struggled to maintain its niche at a time when the enterprise-software industry is consolidating around behemoths like Oracle.

CDC started out as a Chinese Internet portal and has made a string of acquisitions in the past few years to move into enterprise software.

CDC's two largest shareholders are Asia Pacific Online, a Cayman Islands company owned by the family of CDC founder Peter Yip, and the Xinhua News Agency, the Chinese government-owned press agency. Asia Pacific Online owns 10.6 percent of CDC and Xinhua owns 6.6 percent. Banking conglomerate HSBC Holdings owns 5.3 percent.

In CDC's lawsuit, filed in King County Superior Court, the company alleges that Onyx failed its duty to shareholders by "refusing to have properly considered any of our prior offers."

CDC has repeatedly sweetened its offers to Onyx, while CDC executives have complained for months about difficulties arranging conversations or meetings with Onyx. They have waged an unusual offensive to contact shareholders directly through news releases and statements posted on the CDC Web site.

"While we did not want to resort to litigation, we believe this is the only way that Onyx's shareholders will realize the true value of their investments," said Yip, also chief executive of CDC.

CDC's lawyer, Leonard Feldman of Heller Ehrman, said he was confident the court will "require Onyx management to properly evaluate CDC's far better offer."

In its rejection of CDC's most recent offer, Onyx cited a number of factors related to the company's location in China. It's unclear whether CDC has enough cash on hand to complete the offer, Onyx contends, citing a Securities and Exchange Commission filing in which CDC states it has limited ability to transfer cash out of China. Onyx also brought up the possibility of additional regulatory clearances required outside the U.S.

Onyx cited uncertainty of meaningful remedies against CDC for breach of contract, considering that the company holds a substantial portion of its assets outside the United States and a majority of its directors and officers are non-U.S. nationals or residents.

Nathan Schneiderman, an analyst with Roth Capital Partners who has followed Onyx, said CDC's push to acquire Onyx makes sense considering CDC's growing software business. And it still might work, he said; at this point, most Onyx shareholders are concerned only with the viability and the value of the offer.

"They'd probably sell to someone else for five dollars and a nickel," he said.

Kristi Heim: 206-464-2718 or kheim@seattletimes.com