Innodata pulls bid after Appen is forced to breach confidential details to ASX

After having its contract with Google terminated, artificial intelligence company Appen (ASX: APX) has been kicked while down after getting trapped between rock and hard place, with leading data company Innodata to withdraw its takeover bid, citing a confidentiality breach.

On March 12, 2024, Appen received a letter from the ASX inquiring about its price and trading volume—its shares rallied 30% on the day, to which it promptly replied. In its response, Appen revealed that it had received a preliminary proposal from Innodata regarding a potential merger between the two companies, which was highly conditional, confidential, and non-binding. 

However, overnight, Innodata informed Appen that it was retracting its proposal because it was intended to remain confidential. In a press release, Innodata expounded, “The Proposal was made public by Appen on March 12, 2024, after the Australian Securities Exchange (ASX), at the request of Appen, halted trading in Appen stock and required disclosure of any business activities which impacted recent trading in Appen’s stock.”

Unfortunately, Appen had little say in the matter.

It was obligated to respond to the ASX letter highlighting a change in price in Appen’s securities from a low of $0.87 to a high of $1.11 and an increase in the volume of APX shares being traded. 

Appen noted that, in recent months, it has engaged in confidential discussions with various parties who have expressed an interest in some or all of Appen’s business. Other than an indicative proposal from Innodata, Inc, none of the discussions progressed to any indicative proposal being put to Appen. 

Innodata is a New Jersey-based NASDAQ-listed entity that proposed a potential combination of the two companies through a stock-for-stock transaction. The Indicative Proposal, worth $154 million, contemplated an offer consideration of $0.70 worth of Innodata shares per Appen share (which equated to a premium in excess of 100% to the Appen share price when the Indicative Proposal was provided). 

Appen is hitting wall after wall in its pursuit of cost efficiencies. This is not the first abrupt termination it has seen this year. In January, Google terminated its contract with Appen without notice. This was a huge financial blow since the tech giant was bringing in over $80 million in revenue for the Company. 

What’s more, this is the second time a takeover bid for Appen has been abruptly withdrawn over the past couple of years. Earlier, Canadian IT firm Telus had proposed a $1.2 billion takeover in mid-2022, but it abruptly withdrew its offer without offering a reason.

Even though AI reigns supreme in today’s tech environment (think ChatGPT, Gemini and much more), Appen has to grapple with more foundational issues. 

Its share price has gone from over $30 in 2020 to only about 14 cents now. APX shares plunged 40% on market open following the Google news announcement. This time around, however, shares fell by about 15%, with shareholders expressing sympathy for Appen.