Wall Street Journal Interactive Edition
Phone.com, Software.com Agree
To Merge, Lure Former Cisco Chief
By NIKHIL DEOGUN, PUI-WING TAM and SCOTT THURM
Staff Reporters of THE WALL STREET JOURNAL
Phone.com Inc. and Software.com Inc., two highflying companies that provide Internet software to telecommunications companies, confirmed that they have agreed to a $6.4 billion stock-swap merger and lured a top executive from Cisco Systems Inc. to run the combined company.
Both companies' boards have approved the transaction, and an announcement is expected Wednesday.
Cisco Chief Executive John Chambers confirmed Tuesday evening in a conference call with analysts that Donald J. Listwin, one of only two executive vice presidents at Cisco, was leaving to head a company in which Cisco has a minority investment and "is about to go through some industry-leading changes." Mr. Listwin said he had "mixed feelings" about leaving and called it a "very difficult decision." They both said the opportunity had come about "very rapidly," but didn't provide any specifics.
Mr. Listwin, a board member of Software.com since 1997, would be CEO of the merged entity, which has yet to be named. Cisco owns 7.4% of Software.com, according to Software's April 27 proxy filing.
Phone.com makes software for connecting cellular phones and other wireless devices to the Internet, while Software.com makes software to combine e-mail, voice mail and paging messages. As such, a deal would create a unified wireless Internet-access company. The combined company will likely benefit from Software.com and Phone.com's already widespread customer base of more than 140 major communications-service providers world-wide, including AT&T Corp., Sprint PCS, Verizon Wireless and British Telecom PLC.
The transaction also underscores the continued high valuations for firms with little revenue but significant growth potential. The companies had combined revenue in the past 12 months of only $147.3 million but together have a market capitalization of $11.5 billion.
The deal is being structured as a merger, with each company's shareholders expected to own 50% of the combined entity and three directors from each company joining the board. That said, Phone.com is technically the acquirer and will offer 1.6105 of its shares for each share of Software.com.
At 4 p.m. Tuesday in Nasdaq Stock Market trading Tuesday, shares of Phone.com rose 44 cents to $78.06, while Software.com increased 75 cents to $107.75. Based on Tuesday's prices, Software.com shares will be valued at $125.68 a share, a 17% premium to its closing price. Shareholders who were hoping Phone.com would be a takeover candidate may be disappointed that the highflier is pursuing a merger.
Mr. Listwin's move is expected to be a blow to Cisco and a coup for the merged phone-software entity. Mr. Listwin has led Cisco's push to sell its gear to traditional telephone companies, a potentially huge market that dwarfs Cisco's traditional business of selling computer-networking equipment to large companies and Internet providers.
Outsiders have long looked at Mr. Listwin as a potential successor to Mr. Chambers, but Cisco insiders have considered that much less likely. Mr. Chambers last year told Cisco's board he would remain CEO for five more years. Mr. Listwin has hinted in conversations he wouldn't wait around for Mr. Chambers to retire. "Don wants to be his own CEO," Mr. Chambers said in an interview Tuesday night.
Born and educated in Canada, Mr. Listwin joined Cisco in 1990 as a marketing manager, and rose through the ranks before being named executive vice president in 1998.
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