Game on.

And shareholders of Waterloo, Ont.-based Sandvine Corp. are more than happy to enjoy the action — though, judging from the recent flurry of trading, investors are expecting even more action: over the past month the daily average trading volume has been about four times what it has been over the past 12 months. Monday the shares hit an all-time high.

The latest twist in the battle for the company that provides “network policy control solutions,” occurred last Friday when the San Francisco-based private equity firm, Francisco Partners upped its offer to $4.40 a share. This is the second time that Francisco Partners has bid: two weeks back it lobbed an offer at $4.15 a share, or $0.35 a share more than what Canadian-based Vector Capital, another private equity firm, had bid.

New offer

That bid (at $3.80 a share) had been accepted by Sandvine and was all set to be put to the shareholders before Francisco Partners arrived on the scene. The company deemed the new offer “a superior proposal,” and gave Vector until late Thursday to match. So just before the markets closed on that day, Vector responded: while it didn’t increase the consideration above what Francisco had offered, the offer from Vector was deemed to be a superior proposal,” in part because Vector “has agreed to an increased level of commitment with respect to obtaining required regulatory approvals.”

Vector and Sandvine also agreed to new language of a break fee (it’s now $16.9 million and would be paid to Vector under certain conditions) and a reverse termination fee of $42 million (which would be paid to Sandvine under certain conditions).

But if such fees are meant to discourage bidders they didn’t work. The next day, meaning last Friday, Francisco Partners returned with an increased offer: it was willing to pay another $0.25 a share.

So what’s next?

Clearly the ball is in Vector’s court. Under the process that’s been set up, it has seven days to decide whether to match the $4.40 offer from Francisco Partners. That period ends at 5 p.m. on Friday. The company’s shareholders are slated to make their decision at a special meeting scheduled for July 18.

Synergies

In a straight contest between Vector and Francisco, the feeling is Francisco wins. It owns Procera Networks, a company that’s in a similar business to Sandvine. In a note issued Monday, Richard Tse, an analyst with National Bank Financial, said it was “not surprising” Francisco Partners upped its bid. Tse added that acquiring Sandvine — and putting it together with Procera — would allow the generation of “potential operating synergies” of $40 million. Sandvine has about 130 million shares outstanding —which translates into about $0.30 a share.

Tse, who has a $4.50 per share target and an outperform rating on Sandvine, said that “up to $4.40” investors are being offered “an inexpensive call option.” He added Sandvine has an upside potential of $5.

Francisco Partners is in the news for other reasons, as well. Monday’s New York Times ran an article Spyware Sold to Mexican Government Targeted International Official. In the article it was stated that the software (known as Pegasus) was supplied by Israeli-based NSO Group, a private company owned by Francisco Partners.

Another U.S. publication, Forbes, had a similar article. In its report, Forbes said that Procera Networks, “had to deal with a mutiny after employees feared they were being asked to provide surveillance services to Turkey.”

To the extent that the acquisition of Sandvine may require government approval, those two situations may expose Francisco’s offer to some regulatory risk.

Financial Post

bcritchley@postmedia.com