Financial Post
Wednesday, December 24, 1997
Fulcrum finds salvation in PC Docs' $57M
takeover
By JILL VARDY
Technology Reporter The Financial Post
OTTAWA - Fulcrum Technologies Inc. will cease to be a publicly traded company in early
February if shareholders approve its purchase by PC Docs Group International Inc., announced
yesterday.
But Fulcrum's executives have pulled off an unexpectedly good deal for the company by
negotiating its sale to Toronto-based PC Docs, analysts say.
The friendly takeover ends four months of searching for a financial savior for the Ottawa-based
company, which makes search engine software for data retrieval.
PC Docs will pay about $57 million for Fulcrum - about $31 million worth of PC Docs shares to
purchase the company and $26 million to assume debt held by
Royal Bank of Canada.
"That's a lot of money for this company," said Duncan Stewart,
partner at technology investment firm Tera Capital Corp.
The sale means Fulcrum continues as a going concern, operating as a fully owned subsidiary of
PC Docs.
"This is a perfect, perfect fit," said Rubin Osten, chairman, president and chief executive of PC
Docs. "It will facilitate our growth and expansion."
PC Docs will begin bundling Fulcrum's search engine software into its own products, he added.
The two companies will also begin marketing to each other's customers and taking advantage of
their respective geographic strengths - Fulcrum's in Europe and Asia, PC Docs' in North America
and Britain.
Fulcrum chairman and chief executive Eric Goodwin, fresh from a meeting with employees, said
he's been discussing the deal with PC Docs for about two months. A few last-minute glitches
prevented him from announcing it to staff last Friday.
"So the doughnuts [bought for the staff meeting] went to the food bank and we got fresh ones for
today," said Goodwin, clearly elated he's found a buyer who will keep Fulcrum and its staff intact.
PC Docs will acquire all the outstanding shares of Fulcrum, including those now held by majority
shareholder Datamat Ingegneria dei Sistemi SpA of Italy. Fulcrum shareholders will be offered
one PC Docs share for every 4.4 Fulcrum shares. About four million PC Docs common shares
will be issued to acquire all Fulcrum's.
Fulcrum shares (FUL/TSE) closed yesterday down 12› at $1.54. PC Docs shares (DXX/TSE)
ended the day off 35› at $7.40.
Goodwin said the present low price for PC Docs stock makes this a better deal for Fulcrum
shareholders.
"If we had exchanged shares with another company whose stock was at a premium there
wouldn't have been much upside for our shareholders," he said. "One nice thing about PC Docs
is
their stock is undervalued at the moment."
Fulcrum hired Midland Walwyn Capital Inc. to help find a partner soon after announcing sharply
lower revenue for the third quarter ended Sept. 30. Other companies rumored to be talking to
Fulcrum were rival Verity Inc. of California, Hummingbird Communications Ltd. of Toronto and
OpenText Corp. of Waterloo, Ont.
Goodwin acknowledged he held discussions with other companies, but declined to identify them.
Fulcrum's revenue was hammered by competition from Microsoft Corp. and other software
vendors, whose versions of search engine software can be downloaded from the Internet,
sometimes for free.
Fulcrum's new Internet-based search software, Knowledge Network, is selling well, but revenue
so far isn't high enough to cover losses from older products.
In the third quarter, Fulcrum reported a net loss of $33 million ($1.95 a share), compared with a
profit of $1.2 million (8›) a year earlier. The loss includes $24.9-million of restructuring costs to
cover laying off 79 people, 20% of its staff.
In late November, Royal Bank extended Fulcrum's lines of credit and Datamat poured in some
extra cash to buy the company time.
Analysts, including Stewart, had speculated a buyer could simply wait until Fulcrum ran out of
money, then cherry pick its technology.
But Osten said PC Docs wanted Fulcrum intact.
"We figured if we waited for them to become insolvent, we would lose a lot of the key people in
the organization," Osten said. "So it was worth it to us to buy the company as a going concern."
The two companies will complement each others' product lines and offer customers complete
document management software, Goodwin said.
Stewart also noted that PC Docs has deep enough pockets to give Fulcrum time for its
Web-based software to develop a strong market. PC Docs is sitting on about US$84 million in
cash.
PC Docs also buys the right to claim the more than $30 million in tax losses Fulcrum has
accumulated.
"That will be an added benefit to us going forward," Osten said. |
