In an announcement to the Australia Stock Exchange today, Sausage said it regards Solution 6's current bid to acquire the company "unacceptable".
"As a result of recent events, including market volatility . . . in the Board's view [the offer] significantly undervalues the company," company officials said.
"On the current proposal the board does not believe it could recommend the merger terms to its shareholders."
The statement also said Sausage shareholders, who control more than 20 per cent of ordinary shares, have already advised the board they will not be accepting the current offer.
Wayne Bos, Sausage Software CEO said the company is prepared to continue discussions, but would only consider a bid offering value to the company and its shareholders.
According to Bos, Sausage shares jumped 20 per cent today following the news.
Solution 6 announced in March that it planned to acquire Sausage in a six for ten share offer. Under the deal, it would offer Sausage two seats on the Solution 6 board and Sausage CEO the directorship of the new entity.
Despite the setback, which follows last week's announcement from Telstra that its asset contribution and share subscription deal with Solution 6 will be repriced, Solution 6 said it plans to continue to execute its business plan.
"Solution 6 believes that the current six for ten offer is fair but acknowlegdes that it would be difficult to complete the takeover without significant support from the Sausage management and board . . . Solution 6 believes that the current offer reflects a fair sharing of the future benefits to be realised by the merger entity," Solution 6 officials said.
According to a Solution 6 spokesperson, Solution 6 is still qutie keen" to progress the acquisition.
"The offer is certainly on the table . . .but we are not going to pay more for an acquisition than we think it's worth," he said.
"We believe our offer is fair . . .we are not prepared to vary our offer at this stage."
Since the recent stock market "correction" and various news reports, shares from both Solution 6 and Sausage Software have seen a dramatic turnaround.
Solution 6 shares, which once traded as a high as $17, today closed down 5 cents for the day at $3.83. Suasage performed stronger, perhaps as a reaction to today's news, and was up more than 16 per cent to close at $2.74. Overall, the local market reacted strongly today, with the All Ords 500 up 49.7 points, or 1.6 per cent to 3075 points.
Meanwhile, according to a Telstra spokesperson, today's news from Sausage will not affect the carrier's plans with Solution 6.
"It's a good fit; we're committed to pursuing the deal," the spokesperson said. "This is really an issue for [Sausage and Solution 6]. We are quite independent from that."