UPDATE 3-Hedge fund ends offer for Epicor, shares fall

(Adds Epicor response, updates share movement)

By Savio D'Souza

BANGALORE, Nov 21 (Reuters) - Hedge fund Elliott Associates LP ended its hostile takeover bid for Epicor Software Corp (EPIC.O) after the business software maker's board backed its view that stockholders should reject the "highly conditional" offer, and shares of Epicor slumped to a five-year low.

The backing down by Elliott Associates ends an almost two-month long battle which saw the hedge fund first take the offer directly to shareholders and then lower its offer price, all the while suffering continuous rebuttals by the company.

"We wouldn't be surprised if Elliott proposed a dissident slate of directors at Epicor's annual shareholders meeting, likely to be held in late spring 2008," Mark Schappel of Benchmark Co LLC said, arguing that with its stake in the company, the hedge fund would not give up.

Elliott, which along with its affiliates own about 12.5 percent in the company, backed away from its lowered offer price of $7.50 a share almost 12 days before Dec. 3, the scheduled end date for the tender offer.

"Epicor remains committed to building stockholder value through the execution of its business plan, product strategy and roadmap," the company said in a statement.

Shares of the company fell 59 cents to $3 in afternoon trade on Nasdaq. The stock had earlier touched a low of $2.91, about 61 percent below Elliott's offer price of $7.50 a share.

"We see no respite for the company (Epicor) in a deteriorating macro environment and no immediate catalyst to drive the shares higher," Lazard Capital Markets analyst Joel Fishbein Jr said in a note to clients.

The analyst downgraded the stock to "hold" from "buy," saying the withdrawal of the offer removed the near-term appreciation potential he was expecting.

In a letter sent to the company's board, Elliott said it was "astounded and disappointed" by Epicor's recommendation that stockholders reject its offer, and the all-cash premium offer should at least have merited a meeting or discussion.

However, Peter Goldmacher of Cowen & Co said small cap software companies with steady maintenance streams are extremely attractive, and Epicor might possibly garner another buyout bid.

Epicor said maintenance revenue is expected to approach or exceed $200 million for fiscal year 2008. It had reported maintenance revenue of $160.3 million for 2007.

In the letter, the fund also claimed that several other potential buyers have expressed interest in buying Epicor but have been rebuffed by the board.

Epicor's board has repeatedly rejected New York-based Elliott's offer, saying a successful execution of its business plan would provide greater value to stockholders than the offer.

The road ahead for Epicor is bumpy at best, Goldmacher said. "License growth will shrink and there will be many rounds of cost cutting." (Additional reporting by Eric Yep; Editing by Amitha Rajan and Deepak Kannan)