Melbourne-based digital services company 5G Networks (ASX: 5GN) has lifted its on-market takeover bid for struggling cloud computing group AUCyber (ASX: CYB) by around $3 million, but its offer is still slightly lower than a competing bid announced on Christmas Eve by managed IT services provider Brennan.

Following a horrendous few months for AUCyber shares due to disappointing results from merger integrations and leadership instability, last month 5GN offered $0.11 per share in the company, representing an $18 million valuation.

The initial proposal represented a modest 1 per cent premium at the time, but a 63 per cent discount to a level close to $0.30 for CYB shares in July. Brennan followed suit with a $0.14 per share offer, valuing Brisbane-based AUCyber at $22.8 million

In January the AUCyber board recommended shareholders reject 5GN's initial offer, and revealed confidentiality agreements had been executed with Brennan to conduct due diligence. 

Already with a 10.74 per cent stake in the company since its on-market takeover campaign began, today 5GN edged closer to Brennan's offer in financial terms with a $0.135 per share proposal worth almost $22.1 million.

5GN says this is its final offer price with the offer remaining open to acceptance until the close of trading on Thursday, 6 February unless withdrawn.

The board of AUCyber, formerly known as Sovereign Cloud Holdings and with ownership ties to data centre giant NEXTDC (ASX: NXT), has urged shareholders to take no action in response to 5GN's offer.

"The board of AUCyber will consider 5GN's revised offer and provide further guidance to AUCyber shareholders prior to market open on 29 January 2025," the company stated in an ASX release today.

The group changed its name following a shareholder vote at its annual general meeting (AGM) in October, where chair Cathie Reid highlighted a strategic restructuring of the group with targeted acquisitions to expand its customer base, offer a broader range of products and services, and enhance its capabilities to serve new markets.

But in early December AUCyber revealed its acquisitions of PCG Cyber, Venn IT and Arado had not gone to plan. The merger of these operations with its core AUCloud business performed below expectations with unaudited revenue down 29 per cent on budget over the four months to the end of October.

This meant AUCyber was running at an underlying EBITDA loss of $1.3 million over the period, and that bad news was compounded by the shock resignation of Peter Maloney as managing director and CEO. 

The announcement on 4 December said Maloney would assist with the transition of his CEO duties in the interim until 31 March 2025 unless the board elects otherwise.

Just over two weeks later, the board did elect otherwise, terminating Maloney's employment with immediate effect as Cathie Reid took on a caretaker role as executive chair.

Now that Maloney has left the company, there are only three board directors left - Cathie Reid, Ross Walker, and Craig Scroggie, with the latter being the nominee and chief executive officer of NEXTDC which holds almost a third of AUCyber's shares.

AUCyber has paused its search for a new CEO pending the outcome of current takeover activity.

In mid-January the company reported negative operating cash flows of $2.8 million for the December half, as well as further financing cash outflows of $1 million relating to property and data centre leases.

"While the decrease in revenues is partially due to seasonality, AUCyber’s Cyber Security, Cloud Solutions, Managed Services and Professional Services operations, continue to perform below expectations," the company stated.

"This is principally due to slower than expected new customer signings, recent customer churn and/or downsizing of customer contracts in some areas of the business.

"Furthermore, gross margins are lower than expected principally due to the business being resourced with a larger cost base to support a materially higher forecast revenue base."

AUCyber also revealed that a recent review of the acquired businesses have highlighted several shortcomings in both risk management and execution of the business plan at the time of merger.

"Alongside the recent takeover activity, the board is currently evaluating opportunities to right size and optimise its cost base for the lower revenue and slower momentum that has been observed, as well as focusing on go to market initiatives to drive new business opportunities," the company said.

Help us deliver quality journalism to you.As a free and independent news site providing daily updates during a period of unprecedented challenges for businesses everywherewe call on your support