20th Jun 2005 07:16
SDL PLC20 June 2005 20th June 2005 SDL PLC PROPOSED ACQUISITION OF TRADOS The Board of SDL announced today proposals to acquire for a maximum aggregateconsideration of $60.0 million (£33.0 million), the intellectual property inTRADOS and all of the outstanding issued shares of TRADOS. This includes $7.8million (£4.3 million) in relation to the TRADOS Management Incentive Plan. Theabove transactions will be satisfied by a cash consideration of $50 million(£27.5 million) to be funded from new bank facilities of £20 million and thebalance from the existing cash resources of the Company and by the issue ofOrdinary Shares in SDL with a value of up to $10.0 million (£5.5 million). TRADOS Incorporated, a Delaware corporation, provides translation software thatenables global businesses to operate more efficiently in foreign markets byautomating key processes associated with the authoring, localization andpublishing of enterprise information. TRADOS products are used in over 3,500 enterprises, and it enjoys a significantmarket share of the translation memory solutions market. TRADOS products andservices are tailored to meet the application and infrastructure software needsof three distinct market segments: (i) global enterprises; (ii) localizationservice providers; and (iii) freelance translator professionals. The acquisition is conditional, inter alia, upon the approval of SDLShareholders at an Extraordinary General Meeting to be convened for thispurpose. SDL plc is today holding an analyst presentation in relation to the proposedacquisition. If you would like to attend please contact Financial Dynamics atthe number given below. Background to and reasons for the Acquisition - Proliferation of global operations and rapid convergence of data todigital format, create a real need for a cost effective, multi-lingualinformation management system on a global scale - By combining the technology, R&D, customer relationships and salesand marketing capabilities, the Enlarged Group will offer a stronger and morecompetitive offering in the Global Information Management ("GIM") market withthe breadth and scale that the market demands - The Board believes the acquisition to be in the best interests ofShareholders for the following reasons: o TRADOS is a leading provider of translation software products. It has awide customer base, proprietary technology and is well regarded in thetranslation industry; o the Acquisition represents the opportunity to strengthen SDL's positionin the translation software sector through the integration of SDL's technologyand TRADOS's product, market and technical knowledge; o the Acquisition represents the opportunity to accelerate thedevelopment of the next generation of translation software based on openindustry standards by bringing together TRADOS's and SDL's products anddevelopment teams and leveraging the ability of the Enlarged Group to invest intranslation software and services; o the Acquisition represents the opportunity to provide expandedfunctionality and enhanced features for TRADOS's current customer base; o the Acquisition will give SDL further access to the internationalmarket through TRADOS's distribution network, therefore giving SDL theopportunity to cross sell its business process outsourcing solution; and o the Enlarged Group will provide extensive end to end technology andservice solutions for managing information assets on a global enterprise level. - The Directors believe that the Enlarged Group will have an increasedmarket presence and the Enlarged Group will be better placed to exploit the GIMmarket. - Following the Completion of the acquisition, Joseph S Campbell,President and CEO of TRADOS Inc will be joining the board of SDL as aNon-Executive Director. - The Directors of SDL unanimously recommend the acquisition to the SDLShareholders - The Board of SDL expects that the Acquisition will be earningsenhancing in 2006 Mark Lancaster, Chief Executive Officer of SDL plc, said: "The Board believes that the acquisition will increase SDL's long-term growthand profitability, offer an attractive product offering and give SDL thecritical mass to compete more effectively in the Global Information Managementmarket. SDL has significant resources and infrastructure to implement itsvision of the expansion of the GIM market. TRADOS has a considerable installedbase of technology solutions and both companies have leading technology. Thesuccess of both TRADOS and SDL in selling technology through an understanding ofwhere it fits and how to sell it gives me great confidence in our future as acombined entity." Joseph Campbell, President and Chief Executive Officer of TRADOS Inc, commented, "This is a wonderful opportunity for the Enlarged Group to take full advantageof the growth opportunities in software, services and solutions for the globalinformation management market." All dollar amounts have been converted into sterling at the rate of $1.82 to thepound, the exchange rate on 17th June 2005, being the latest practicallyavailable data prior to the issue of this announcement. For further information, contact: SDL plc Tel: 01628 410 127Mark Lancaster, Chief Executive Financial Dynamics Tel: 020 7831 3113Edward Bridges/Juliet Clarke PROPOSED ACQUISITION OF TRADOS (Detailed background) The Board of SDL announced today proposals to acquire for a maximum aggregateconsideration of $60.0 million (£33.0 million), to be satisfied by a cashconsideration of up to $50 million (£27.5 million), which includes $7.8 million(£4.3 million) in relation to the TRADOS Management Incentive Plan, and theissue of Ordinary Shares in SDL with a value of up to $10.0 million (£5.5million) (i) by way of a merger through its subsidiary, TRADOS Acquisition Corp,all of the outstanding issued shares of TRADOS, and (ii), by way of an assettransfer agreement, translation management and translation memory softwareintellectual property assets of TRADOS. The cash consideration is to be fundedfrom new bank facilities of £20 million and the balance from the existing cashresources of the Company. In view of the size of the Acquisition in relation to SDL, the Acquisition isconditional, inter alia, upon the approval of SDL Shareholders. An ExtraordinaryGeneral Meeting will be convened to seek such approval in due course. A document providing Shareholders with information relating to the Acquisition,to explain the rationale for the Acquisition and why the directors of SDLconsider the Acquisition to be in the best interests of SDL and the Shareholdersas a whole will be sent to Shareholders in due course. The document will alsoinclude a Notice of the Extraordinary General Meeting at which the resolution toapprove the Acquisition will be proposed. The Directors have irrevocably undertaken to vote in favour of the Resolution inrespect of their entire aggregate shareholdings in SDL amounting toapproximately 6.5 per cent of SDL's current issued share capital. Information on TRADOS TRADOS Incorporated, a Delaware corporation, provides translation software whichenables global businesses to operate more efficiently in foreign markets byautomating key processes associated with the authoring, localisation andpublishing of enterprise information. TRADOS employs over 140 staff in 5 officesacross Asia, Europe and North America. The company was founded in 1984 inStuttgart, Germany, and moved its headquarters to the United States in 1997. TRADOS products are used in over 3,500 businesses, and it enjoys a global marketshare of translation memory solutions of greater than 50 per cent. TRADOSproducts and services are tailored to meet the application and infrastructuresoftware needs of three distinct market segments: (i) global enterprises; (ii)LSPs (which provide outsourced translation services to global enterprises); and(iii) freelance translator professionals. Global Enterprise Market Enterprise customers use TRADOS software solutions primarily to localise theirproducts and services, such as sales and marketing materials, websites, customersupport materials and partner support materials. In addition, an increasingamount of TRADOS's revenue has been derived from the provision of GlobalizationInformation Management (GIM) systems which ensure the optimal use of theauthoring, localisation, and publishing of enterprise content wherever it iscreated, stored or used. TRADOS solutions targeting the GIM market include TRADOS Global Enterprise SuiteTM, TRADOS Departmental SuiteTM and TRADOS Term Management SuiteTM. Theclient server architecture allows the product to be deployed and shared globallyacross the customer's business. The capabilities of each suite are tailored tomatch the customer needs and buying preferences of enterprise-wideimplementations, departmental implementations and partner-driven implementationsrespectively. TRADOS also provides consulting, professional services and technical supportservices to help its customers plan, develop and implement globalizationinformation solutions. Enterprise customers include clients such as HP, Intel,John Deere, SAP, Siemens, Veritas and Volkswagen. Desktop Translator Applications Market The market for desktop translator applications is a combination of businesses,LSPs and freelance localisation professional users whose needs are limited to anindividual desktop. Desktop products are designed to enable users to workwithout the need of a server or network. The Desktop Translator Applicationimproves translators' efficiency by allowing the re-use of text segmentspreviously translated and stored in translation and terminology memorydatabases. Summary financial information on TRADOS for the three years ended 31 December2004 The table below summarises the results of TRADOS for the three years ended 31December 2004 and the net assets of TRADOS at each of those dates. Year ended 31 December 2002 2003 2004 $'000 $'000 $'000 Turnover 19,656 24,440 25,847 Gross Profit 15,408 18,310 19,064 Loss On Ordinary Activities Before Taxation (5,531) (4,903) (7,623) Net Assets At 31 December 11,036 9,151 1,377 The above figures have been extracted without material adjustment from theaccountants report on TRADOS set out in the circular to be sent to Shareholders.In order to make a proper assessment of the financial position of TRADOS, youshould not rely solely on the summary financial information set out above butshould read the whole of the circular being sent to Shareholders. Historically, TRADOS focused on the desktop translator applications market withthe company being driven from a technology perspective with an emphasis onsoftware product development. Sales levels in this market proved to beinsufficient to cover the company's significant investment in software and thesales and marketing costs being incurred. In 2002 TRADOS acquired Uniscape, Inc.in order to acquire enterprise translation technology, with the goal of movinginto the enterprise translation solutions market and assisting large enterprisesmanage their multilingual content. TRADOS continued to invest heavily in the Uniscape software platform, a platformdeveloped on J2EE (Unix) development platform, and the desktop translationmemory, which had been developed on the Windows platform. TRADOS planned tointegrate the desktop technology into the Enterprise Translation ManagementSystem thereby combining both technologies and thus enabling it to leverage moreeffectively its existing desktop customer base into the enterprise market. However, following a sustained period of software development and a relativelylow marketing and sales spend TRADOS remained cash flow negative and deliveredlimited revenue growth. TRADOS has since June 2004 rationalised its softwaredevelopment plans and refocused its business on creating a balanced investmentbetween software development, professional services and, importantly, sales tothe enterprise market. This resulted in a major restructuring program, and one-off costs of $3 millionbeing incurred during the financial year ended 31 December 2004. The newbusiness model has since led to a consistent and significant improvement ofmargins in both the enterprise and desktop sectors of the business. Whilst thebenefits of the restructuring only took effect in the fourth quarter of 2004,the benefits have continued into 2005. Background to and reasons for the Acquisition Since its flotation in 1999, SDL has established itself as one of the leadingproviders of translation software services and solutions. It has achieved thisthrough both organic and acquisitive growth, creating global infrastructure andtechnology solutions such as SDL's Knowledge-based Translation System. The global economic boom of the 1990s resulted in massive expansion of globalmarket operations within large enterprises. This led to rapid growth, but thatgrowth brought an ad hoc deployment of disjointed and incompatible informationsystems and related business processes. Now, in a time when cost reduction andperformance improvement are major priorities, global enterprises are faced withthe challenge of optimising global operations. The rapid convergence of data to digital format and central storage coupled withthe overlap of the various data sources within companies is currently beingacknowledged as both a major cost issue and an opportunity for the business tosignificantly grow market share through effective management of digital content.Management of single language content is a complex systems problem, however thisis magnified many times for translation and management of multiple languages.Global Information Management is therefore considered to be a key emergingindustry need. TRADOS will bring to the Enlarged Group a suite of translation softwareproducts. TRADOS products are used in over 3,500 businesses worldwide. The Boardbelieves that combining the technology, research and development resources,customer relationships and sales and marketing capabilities of the two companieswill create a stronger and more competitive offering in the GIM market, with thebreadth and scale that the market demands. The Board believes that theacquisition of TRADOS will increase SDL's long-term growth, will offer anattractive product offering and will mean that SDL will have the critical massin the GIM market to compete more effectively. The Board believes the Acquisition to be in the best interests of Shareholdersfor the following reasons: - TRADOS is a leading provider of translation software products. It has awide customer base, proprietary technology and is well regarded in thetranslation industry; - the Acquisition represents the opportunity to strengthen SDL's position inthe translation software sector through the integration of SDL's technology andTRADOS's product, market and technical knowledge; - the Acquisition represents the opportunity to accelerate thedevelopment of the next generation of translation software based on openindustry standards by bringing together TRADOS's and SDL's products anddevelopment teams and leveraging the ability of the Enlarged Group to invest intranslation software and services; - the Acquisition represents the opportunity to provide expandedfunctionality and enhanced features for TRADOS's current customer base; - the Acquisition will give SDL further access to the internationalmarket through TRADOS's distribution network, therefore giving SDL theopportunity to cross sell its business process outsourcing solution; and - the Enlarged Group will provide extensive end to end technology andservice solutions for managing information assets on a global enterprise level. The Directors believe that the Enlarged Group will have an increased marketpresence and the Enlarged Group will be better placed to exploit the GIM market. Potential risks of the Acquisition Potential risks of the Acquisition include the following: - the risk that SDL might not be successful in integrating TRADOS'sbusiness with its own (including any management and employee disruptionassociated with the Acquisition), or that the potential benefits of theAcquisition, as outlined above, might not be realised; - the fact that substantial expenses will be incurred in connection withthe Acquisition, including costs of integrating the businesses and transactionexpenses arising from the Acquisition. - the risk TRADOS's revenues may not meet the levels that the Company isanticipating in costing the Acquisition; and - Given the size of the Acquisition, the Company is not required to makeany notification to any relevant competition authorities. Whilst there can be noassurance, the Board believes this transaction complies with applicablecompetition law. Terms of the Acquisition SDL has conditionally agreed to purchase for a maximum consideration of $60million (£33.0 million), to be satisfied by a cash consideration of up to $50million (£27.5 million), which includes $7.8 million (£4.3 million) in relationto the TRADOS Management Incentive Plan, and the issue of Ordinary Shares in SDLwith a value of up to $10.0 million (£5.5 million) (i) by way of a mergerthrough its subsidiary, TRADOS Acquisition Corp, all of the outstanding issuedshares of TRADOS, and (ii), by way of an asset transfer agreement, translationmanagement and translation memory software intellectual property assets ofTRADOS. The cash consideration is to be funded from new bank facilities of £20million and the balance from the existing cash resources of the Company. The $10.0 million worth of Ordinary Shares will, when issued, rank pari passu inall respects with the existing Ordinary Shares including the right to receiveall dividends thereafter declared, made or paid on the issued share capital ofthe Company. Application has been made for 4,539,417 Ordinary Shares (being thetotal number of Ordinary Shares to be issued at Completion) to be admitted tothe Official List. Certain stockholders of TRADOS have entered into lockin agreements pursuant towhich they have agreed not to sell 30 per cent of the Ordinary Shares issues tothem prior to the four month anniversary of Completion and a further 40 per centof the Ordinary Shares issues to them prior to the one year anniversary ofCompletion. The Acquisition is conditional, inter alia, on the approval of Shareholderswhich is to be sought at the EGM. Further details of the Merger Agreement and the asset transfer agreement will beset out in the circular to be sent to Shareholders in due course, Management and organisation of the Enlarged Group The management and organisation of the Enlarged Group will be made up of acombination of the key employees of both companies. To a large extent the skillsof both companies are complementary. It is not anticipated that additional senior staff will be required to manageand operate the Enlarged Group. An important addition to the Enlarged Group willbe the formal creation of SDL Global Business services, a consulting divisioncreated solely to help and advise companies on the best way to manage themultilingual assets in their businesses. The Directors believe that for the Enlarged Group: - the proportion of headquarter costs compared to revenue will be lowerthan they would have been for the Group and the TRADOS Group individually; - research and development spend as a proportion of revenue will beapproximately 6-7 per cent.; - sales and marketing expenditure will stay at the same levels as theprevious financial year for both companies. Following Completion of the Acquisition, Joseph Campbell, currently Presidentand CEO of TRADOS Inc, will be joining the board of SDL as a Non-ExecutiveDirector. Mr Campbell has had over 20 years' experience in the enterprisetechnology industry and has held key positions at a number of companiesincluding iManage (now part of Interwoven), Alventive, Continuus Software, andBanyan Systems (now ePresence). Current Trading and Prospects of SDL SDL announced on 22 February 2005 that revenue for the year ended 31 December2004 was £62.7 million, a decrease of 3 per cent. on the same period in 2003with profit before taxation and goodwill amortisation up 29 per cent. at £5.3million. The pricing pressure noted in prior periods remains though at areducing rate and the US$ has remained at the levels of late 2004. SDL hascontinued to win new contracts and current sales remain encouraging with repeatbusiness levels maintained. Overall trading to date in the current financialyear ending 31 December 2005 continues in line with management's expectations.The costs of the Acquisition and integration of TRADOS will be reflected inSDL's results for 31 December 2005. These results will also to some degreereflect the current cost structure of TRADOS pending its integration and thecost of the Acquisition. After an initial phase of operational restructuring,the Board is confident that it will be able to derive benefits from TRADOS whichwill be released over the coming years. The Board of SDL expect that theAcquisition will be earnings enhancing in 2006. DEFINITIONS"Acquisition" the proposed acquisition of TRADOS by TRADOS Acquisition Corp, a wholly owned subsidiary of SDL pursuant to the Merger Agreement and the acquisition of certain intellectual property of TRADOS pursuant to the asset transfer agreement "Directors" the directors of SDL "Completion" completion pursuant to the Merger Agreement "EGM" or "Extraordinary the Extraordinary General Meeting of the Company to be convened in due courseGeneral Meeting" "SDL" or "the Company" SDL plc "Enlarged Group" SDL and its subsidiary undertakings following Completion "issued share capital" or " Ordinary Shares in issueissued shares" "Merger Agreement" the conditional agreement between (1) SDL, (2) TRADOS, (3) certain of the existing stockholders of TRADOS and (4) the Stockholders' Representative, dated 19 June 2005 in respect of the acquisition of the entire issued and to be issued shares of capital stock of TRADOS "Official List" the official list of UK listed securities maintained by the UKLA pursuant to the Financial Services and Markets Act 2000 "Ordinary Shares" ordinary shares of 1p each in the capital of the Company "Shareholders" holders of Ordinary Shares "Stockholders" the holders of shares of TRADOS's capital stock, holders of warrants, holders of options under TRADOS's 2000 Stock Option Plan and persons holding securities exerciseable for or convertible into shares of capital stock of TRADOS "TRADOS" TRADOS Incorporated, a Delaware corporation "TRADOS Group" TRADOS, and its subsidiaries "UKLA" the UK Listing Authority, part of the Financial Services Authority, acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SDL.L