Sydney-headquartered managed IT services provider Brennan has withdrawn its $22.8 million takeover offer for AUCyber (ASX: CYB) after rival bidder 5G Networks (ASX: 5GN) upped the stakes in its on-market takeover attempt yesterday. 

Brennan's offer of 14 cents per share (cps) was higher than 5GN's revised "last and final" 13.5cps proposal, but the latter has an advantage from already acquiring more than 10 per cent of shares in AUCyber, a Brisbane-based company formerly known as Sovereign Cloud Holdings.

AUCyber, which counts data centre group NEXTDC (ASX: NXT) amongst its investors with a 31.96 per cent share, was in due diligence discussions with Brennan and had rejected 5GN's earlier offer. 

The board's recommendation is that shareholders take no action on the new 5GN proposal which values AUCyber at approximately $22.1 million.

After the market closed, last night AUCyber reported that Brennan had withdrawn its proposal in response to 5GN's escalated offer.

AUCyber changed its name from Sovereign Cloud Holdings at an annual general meeting (AGM) in October marked by optimism around new acquisitions, but less than two months later it was revealed that integration of new businesses had fallen short of expectation.

Despite bringing new companies PCG Cyber, Venn IT and Arado into the fold, AUCyber's core AUCloud business performed below expectations with unaudited revenue down 29 per cent on budget over the four months to the end of October.

Shares almost halved between the AGM and early December due to this performance downgrade, and it was revealed earlier this year that AUCyber had negative operating cashflows of $1.3 million in the December quarter.

This was an improvement on $1.6 million in operating outflows in the September quarter, but performance in December was aided by $800,000 in reduced staff costs and a $300,000 reduction in one-off due diligence and restructuring costs associated with acquisitions.

Customer receipts in the December quarter declined to $8.7 million from $9.1 million in the September quarter due to customer churn, the downsizing of customer contracts and the underperformance of new business wins during the period.

"The December quarter is also a seasonal low point in the financial year for the Cyber Security business units due to lower billable days during the holiday period," the group clarified.

"Following this weaker than expected performance, the company undertook to revisit its sales and go to market strategy during the quarter. Given the early stage of implementing this revised strategy the company has not yet demonstrated a turnaround in the sales performance it is seeking to achieve."

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