SAUAF - SAUSAGE SOFTWARE LTD.....SSXHF - SOLUTION 6 HLDG LTD
SYDNEY, Australia -- Solution 6 Holdings Ltd. unveiled plans for a friendly 3.5 billion Australian dollars ($2.14 billion) software and online services merger with Sausage Software Ltd. Monday, sparking a stampede for the stocks of both companies.
Regulators and shareholders have yet to approve the deal, but already the target company has said the union will give it strategic benefits and deeper market penetration in the Asia-Pacific region.
Behind the scenes, Telstra Corp., the nation's dominant telecommunications provider, helped to engineer the tie-up and Telstra Convergent Business Group Managing Director Ted Pretty has given the proposal his blessing.
Telstra has minority stakes in both companies and would emerge with around 40% of the new entity, after a A$237 million deal with Solution 6 involving the sale of Telstra's eConnect Internet electronic-commerce business.
"We intend to be a long-term investor in the company [Solution 6], which would be the focus of Telstra's activities in the financial services area. The proposed merger is exciting and offers potential value to all shareholders of both companies," Mr. Pretty said.
Some of that potential value was unlocked immediately as shares in Solution 6 and Sausage shot skyward on the news. Solution 6 closed up A$3.40 at A$12.95, while Sausage finished up A$1.60 cents at A$7.40. The benchmark All Ordinaries index gained 0.8% to 3228.1 points.
Telstra stock didn't fare as well. Its ordinary shares and partly-paid installment receipts both rose 1 cent each to A$7.69 and A$4.73 respectively.
Solution 6's business software and Sausage's Internet software would mesh well together, analysts say, giving Telstra the tech exposure it has promised its shareholders without raising the ire of the Australian Competition and Consumer Commission.
Solution 6 develops and markets accounting and taxation-related software to professional service firms in Australia, New Zealand, South Africa and the U.K.
Sausage also has a business software division and sells Internet tools under the Hotdog brand, which has more than one million users globally. Its other businesses are Internet-focused and include portal architecture and Web site development software.
The bid values Sausage at close to A$1.6 billion and the combined merged entity at A$3.5 billion. Solution 6 intends to offer six of its own shares for every 10 Sausage shares and 10 Solution 6 options for every 10 Sausage options.
Telstra holds 24% of Solution 6 and around 10% of Sausage plus options to raise both stakes to 40%.
Ahead of the merger announcement, Telstra ensured the 40% stakes were safe from dilution. It signed a non-binding agreement whereby it agreed to sell its eConnect e-commerce procurement business, the rights to its financial management services, and its 30% stake in Plestel to Solution 6 for A$237 million.
Solution 6 has agreed to pay Telstra in shares at a price of A$9.75 a share. Also, the companies have agreed that Telstra can set aside an extra A$50 million to purchase further Solution 6 shares at A$9.75 a piece.
"Telstra's proposed asset sale of eConnect will give Solution 6 access to the blue-chip customer base of eConnect and its partners, including distribution channels in the North American market, which are important to Solution 6's expansion plans," Mr. Pretty said.
The company's eConnect business is based in Atlanta, Georgia.
Plestel is an Asia-Pacific joint venture between Telstra and Plessey Corp., a South African telecommunication systems company. It markets and supports small-to-medium business communication solutions under the Commander brand.
Plestel Managing Director John Dougall welcomed the change of ownership.
"We believe the combination of Solution 6 and Telstra's content offerings, the Telstra fixed and mobile network, and Plestel's enablement capabilities will constitute a compelling offering for many of our small to medium enterprise customers," Mr. Dougall said.
In return, Telstra will receive 50% of Iguana, the financial services vehicle of Solution 6. Telstra and Solution 6 will have an equal representation on the board of Iguana.
The friendly merger, effectively a takeover of Sausage, and integration of Solution 6 and Sausage should go smoothly, if the companies get the necessary approvals, analysts say.
Jason Billings, an analyst at Goldman Sachs, said the proposed merger was likely to benefit both companies but noted that the deal wasn't as significant for Telstra.
The directors of Sausage won't make a recommendation to shareholders regarding the bid until they have considered Solution 6's bid statement and the advice of an independent expert.
However, Sausage Chief Executive Wayne Bos is positive about the proposal, which he said would have "strong strategic benefits." |
