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Non-Tech : Attractive opportunities in already announced mergers

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To: D. K. G. who wrote (23)	3/17/2009 9:28:17 PM
From: D. K. G.	of 69

Aladdin buyout faces longer review by Scott Stuart Updated 04:30 PM EST, Mar-17-2009 thedeal.com German antitrust regulators apparently are conducting an extended review of Aladdin Knowledge Systems Inc.'s $160 million acquisition by Vector Capital. Vector is buying Aladdin for $11.50 per share in cash in a buyout announced Jan. 12. The deal is subject to competition approvals by the German Federal Cartel Office and the Israeli Commissioner of Restrictive Trade Practices. The German FCO review period should have expired 30 days after a formal notification, which was made Feb. 13. But the German review is ongoing, an FCO spokesman said. The FCO declined any further comment. The German review process is similar to that of the European Commission. It involves an initial one-month review followed by a three-month extension if regulators seek additional information. The FCO can terminate the process early, so it is not given that an extension would drag the deal out for another three months. Vector did not return calls. The FCO has asked for additional information, but Vector Capital has characterized the request as a standard follow-up, a risk arbitrage source said. The Israeli process also has an initial 30-day review period, which also was expected to expire in mid-March. The companies have not disclosed the exact date of the Israeli filing. Calls to the office of the Israeli Commissioner of Restrictive Trade Practices were not returned. A source close to the transaction in Israel said the deal was moving forward toward a near-term close. Aladdin declined to comment. The company has previously suggested a close before the end of March, but that guidance has been softened to near term. The deal is not subject to the Hart-Scott-Rodino antitrust review process in the U.S. because Aladdin's U.S.-based business falls beneath the asset value test for premerger notifications. But arbs have had some concern that the Federal Trade Commission or Department of Justice might initiate a review. An extended review in Germany might raise the chance that U.S. regulators will issue a request for information outside the HSR process. The deal combines Aladdin's hardware-based software licensing authentication business with the embedded security operations of Vector's portfolio company SafeNet. A source close to the transaction has previously said that the combination raises no competition concerns because other players compete for contracts and each has geographic strengths. Aladdin is strong in Germany, but SafeNet is not, the source said. The merger agreement requires that Vector divest businesses as long as the required sales would not be material. The contract does not define materiality. The termination date for the deal is June 30. There is also a May 7 termination right held by Aladdin. If the deal has not closed by that date and Vector has failed to resolve German or Israeli antitrust concerns with a nonmaterial divestiture, Aladdin can terminate the deal and require Vector to pay $10 million and sell its 14% stake in Aladdin back to the company. Vector and equity partners are providing $130 million for the deal and Wells Fargo Foothill LLC has a commitment for a $51 million debt facility. That facility is conditioned on equity commitments remaining in place if the deal does not close before March 31. Aladdin shares traded Tuesday at $10.28 at a spread of $1.22, or 11.8%, to their value in the deal. The deal also has a cash condition. Aladdin must have $7 million in cash and $13.5 million in working capital at the time of the merger close. Vector set those capital requirement levels knowing Aladdin's fourth-quarter results to protect the buyer from a catastrophic first quarter. The deal also has strong strategic value for Vector's SafeNet.

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