Any attempt by management to take Riverdeep private at less than €2 per share is "purely opportunistic" and shareholders should reject it, NCB Stockbrokers has said.
In a note on the company, the broker said it did not believe that Riverdeep was a typical management buyout (MBO) candidate or that an MBO offered the best option for shareholders.
Instead, it believes Riverdeep management should consider selling its consumer business, which could fetch between $100 million and $150 million, and returning the proceeds, estimated at between €0.41 to €0.61 per share, to shareholders.
NCB analyst Ms Tricia McEvoy believes that Riverdeep's diversification into the consumer market has confused the stock market and destroyed value.
By focusing on its pure schools business, the company could regain a more realistic rating of 12 to 15 times earnings, in line with its peers. This would equate to €1.92 to €2.40 a share.
Chief executive Mr Barry O'Callaghan is currently putting together an MBO, backed by the company's founder and largest shareholder, Mr Pat McDonagh.
It is not clear at what level an offer will be pitched although recent market rumours have suggested a price as low as €1.35. The shares closed at €1.16 last night.
Between them the two men own more than 25 per cent of the company, but NCB believes the MBO is not a done deal and that shareholders should reject any offer below €2.
The broker notes that a sharp cut in guidance for the 2003 calendar year, a reluctance by management to answer questions following release of the first quarter results and to provide a breakdown of revenues for Broderbund, its latest acquisition, contributed to the recent share price decline.
The share hit a low of 75 cents just before the MBO was announced. The broker also argues that signs are emerging that 2003 may be the start of a bounce back year for Riverdeep's schools business.
"By 2004, the industry could again be looking at revenue growth of over 20 per cent, providing ample returns for patient investors," Ms McEvoy said.
