Posted Thursday December 14, 2000
Terry Matthews throws CrossKeys a lifeline
By Jeff Jedras, Ottawa Business Journal
After the markets closed Thursday, Kanata's CrossKeys Systems announced it has secured $8 million in financing to hold
it over while it examines its plans for the future.
The credit facility, which the company says will provide it with the flexibility to pursue its strategic goals, is coming from
Newbridge Networks founder Terry Matthews. Matthews is also chair of the CrossKeys board of directors, and is
already a significant shareholder in the company. CrossKeys was spun-off from Newbridge when Matthews was the
company's president and CEO.
CrossKeys has authorized a total credit facility of up to $16 million and will offer other shareholders of the company the
opportunity to provide the remaining $8 million on the same terms and conditions. The transaction is subject to the
approval of regulatory authorities.
The credit facility from Matthews has an interest rate of 12% per anum, maturing on the earlier of December 13, 2001 or
a change of control of the company. Each time CrossKeys draws funds on the facility, warrants will be issued to the
lender for an aggregate number of common shares equal to 43.9% of the drawdown amount divided by $1.65, the
stock's closing price on the TSE Thursday.
The company announced late Wednesday that is has retained CIBC World Markets to "identify and evaluate strategic
alternatives to enhance shareholder value," corporate speak for the company gearing up for a possible sale.
The funding will give CrossKeys some time to determine its offers, and spokesperson John Blackmore said the company
still intends to report back to its shareholders and the markets with a strategic plan on Dec. 20 when it announces its
revised Q2 results.
Early last week, CrossKeys shares were pummelled by 76% after the company warned it would miss earnings and
revenue estimates for the quarter ended Dec. 3. The company also warned it is facing a serious cash crunch.
Blackmore said earlier Thursday that a sale is just one option the company is considering.
"We're going to investigate all the different strategic alternatives that are open to the company, and one of those would
include a partnership either with or as part of another company," said Blackmore. "That's one of the options on the
table, but it's not the only one."
Blackmore said the company talks with various companies all the time, but he cannot confirm that any specific
discussions are currently underway regarding a sale or partnership.
"You'd be doing yourself a disservice as well as the markets to turn on a dime with this kind of thing, you want to look at
all the options and come back with a reasoned plan," said Blackmore.
Although CrossKeys said a sale is only one option, an analyst with GroomeCapital.com in Montreal, says it's the most
likely one.
"I think the company is going to get sold, but the question is at what price," said Alpha Amar Ba, senior software analyst.
"Obviously, they were in much better shape a couple of months back, but now they have almost no cash left."
Ba said the company has a solid product, but he has not heard of any potential suitors lining up to buy CrossKeys. Ba
added the company is facing an uphill battle.
"They might face a difficult task to find someone at the right price," said Ba. "Why buy them now when you can probably
pick them up in a couple of weeks or months almost free? To make the company more attractive is going to be difficult."
Ba said the markets have largely lost confidence in the stock, and he is doubtful the company can find a strategic partner
to help the company without buying it outright.
CrossKeys was spun of from Newbridge before Newbridge was bought by Alcatel SA in the spring. Alcatel is still a
significant customer of CrossKeys, but Ba said he sees the buyer acting as a competitor rather than a customer. Alcatel
still owns 19.5% of CrossKeys.
"The relationship with Alcatel has actually degraded," said Ba. "Alcatel used to be 75% of CrossKeys sales, now its just
50%. I don't know how comfortable Alcatel would be to buy CrossKeys." |
