| Tue 9 Apr 2002, 0:00 | | Idion Board Rejects Hostile Canadian |
|
Press Release
The Board of IDION Technology Holdings Ltd has recommended that shareholders
reject out of hand the offer from Canadian rival DataMirror Corporation,
saying the offer substantially undervalues IDION and is so conditional that
it cannot be regarded as serious.
IDION is a JSE-listed Information Technology investment holding company with
two operational subsidiaries, IDION Solutions in South Africa and Vision
Solutions in the United States.
In a circular to shareholders issued today, the IDION Board went into detail
on the inherent value of the IDION group, both in South Africa and the
United States. It said the 65 cents a share offer from DataMirror "is an
attempt to buy a valuable asset at a ridiculously cheap price".
The circular included a letter to the directors of IDION from independent
external advisers PricewaterhouseCoopers Corporate Finance. This said "we
are of the opinion that, as at the date of the circular, the amount of the
consideration is significantly less than the true value of IDION and
accordingly is not fair and reasonable to the interests of the shareholders
of IDION."
The circular stressed the company's technology and leadership in global
markets, its financial strength, cash reserves, strong dollar-based cash
flow, current expansion and growth potential.
In particular it highlighted the current performance, increased value and
dollar-based earnings of Vision Solutions, which is IDION's principal asset,
its "most valued and strategic acquisition" and the stated target of the
Canadian bid.
Since the US$54,5 million acquisition of Vision Solutions two years ago,
IDION had made substantial investments in personnel, infrastructure and
research and development.
Vision Solutions had just previewed world-first new technology which could
allow it to penetrate a US$5 billion global market.
Illustrating the low price shareholders were being offered, IDION said it
had R54 million cash in hand as at 31 March 2002, so DataMirror "would
inherit almost as much cash as they are offering IDION shareholders for the
shares".
IDION also noted that profit from one part of the Vision Solutions income,
its recurring maintenance revenue stream of approximately US$12 million a
year, would alone pay for the acquisition within the first year. The
DataMirror offer is equivalent to about US$6 million.
The circular said the South African operation, IDION Solutions, was one of
only five Microsoft Certified Gold Partners in South Africa. It had
significant upside and was poised to serve hard currency markets for Vision
Solutions and to become a global solutions group.
IDION said that the company's true inherent value substantially exceeded 65
cents per share because the current depressed market price was not
indicative of inherent value.
The circular said there were five pillars of inherent value in the IDION
business:
z Financial strength - strong cash reserves and working capital, and
significant cash generated by operations;
z Its large global client base within the "Fortune 100" and strong sales
pipeline;
z Over 100 global channel partners, who had helped the group add 500 new
customers in the past two years compared to the 1300 accumulated in the
previous decade;
z Leading-edge technology and world-class intellectual capital; and
z An experienced and committed management team.
Each of these points was addressed in detail in the circular.
Nicolaas Vlok, IDION's Chief Executive Officer, said the Board of Directors
had rejected the DataMirror offer without reservation.
"The decision was unanimous and had the full support of the three
independent non-executive directors tasked to assess the merits of the bid.
"The advice they commissioned from external independent advisers
PricewaterhouseCoopers and the information we have included in the circular
gives shareholders some detail on the inherent value of IDION. It shows how
we have built up the company and what its potential is.
"The offer is so low that it makes us wonder whether this bid can possibly
be serious."
Vlok believes that once shareholders realise the inherent value in IDION's
business, the share would be rerated.
The circular highlighted IDION's two years of strategic investment in Vision
Solutions, which totals nearly R90 million. This had increased positive cash
flow and positioned the company for profit, with new technology to spur
future growth.
IDION said one of its new products, codenamed ORION, is set to
"revolutionise the managed availability industry" and would expand the
market of Vision Solutions beyond the current focus on the IBM iSeries
market.
ORION is a world-first because it will guarantee the availability of
operating systems and databases not only on the IBM iSeries, where Vision
Solutions has been concentrated, but also on the Unix, Linux and Windows NT
platforms.
Vision Solutions earns most of its money in the rapidly growing managed
availability market, where multinational operations and the demands of
e-commerce require organisations to have their systems and databases
available 24 hours a day.
In its other area of operation, data integration, Vision Solutions will
launch the latest version of its popular Symbiator product on 15 April.
Symbiator 4 also features cross-platform technology and is expected to
increase Vision Solution's share of this market.
IDION attacked statements made about it by DataMirror. IDION said that, far
from being "financially precarious" as DataMirror alleges, it had strong
cash reserves and a steady, reliable, dollar-based annuity income in
addition to licence revenues.
IDION also said DataMirror had made an "inappropriate" calculation of
IDION's working capital, giving an impression that it was negative when it
was in fact strongly positive.
"Even the media statements were misleading," said an IDION spokesman.
IDION's Financial Director, Willem Richard, said the circular showed
shareholders the strong financial position the company was in.
"Not only do we have the largest cash reserves in our history, but our
revenues are increasing as our customer base grows. We have sustainable cash
growth for the foreseeable future, with a growing annuity-based income.
"This revenue stream has doubled to approximately US$12 million over the
past two years and will lessen the historic seasonality of IDION's income."
It said the possible reason the Canadian group found IDION so attractive was
that it wanted to buy market share cheaply, and sought access to IDION's
world-first technology, its global customer base and partner channel and its
strong and growing revenue streams.
"Having assessed the terms of the DataMirror offer, based on the Board's
knowledge of the business and the advice received, the Board strongly
recommends that you reject the offer out of hand. The Board further contends
that this is not a serious offer as it is so significantly conditional that
it is, at best, tentative."
The circular included a brief financial update for the IDION group for the
first quarter of this year, ended 31 March 2002.
It said that highlights of the first quarter in Vision Solutions included
new licence sales growth of 26% and maintenance revenue growth of 33%, both
in dollar terms, over the first quarter last year. After 230 new customer
wins last year, the 50 new customers and 38 licence upgrades added in the
first quarter brought the group's world-wide customer base to more than
1800.
Deferred revenue within Vision Solutions had increased by 25% to US$9,7
million from December last year and was a 53% increase on the first quarter
last year.
Expenses were now fully aligned with the current revenue base and debtor
days had been further reduced since year-end.
IDION chief executive Nicolaas Vlok commented: "Our first quarter was
extremely successful, particularly at Vision Solutions. We had record-
breaking cash flows, saw excellent revenue growth in all areas of the
business and have made significant progress on our research and development
initiatives."
The IDION board said it continued to be comfortable with the 2002 outlook
previously provided to shareholders. IDION has said it expects to be
profitable by year end.
IDION Executive Director De Wet Vlok, responsible for IDION's acquisitions,
said the circular showed the inherent value of the Vision Solutions
acquisition.
"This acquisition could not be repeated now taking into account the rand's
slide since we purchased Vision Solutions at an exchange rate of R6.48 to
the dollar.
"The acquisition enabled IDION to diversify into and penetrate a lucrative
niche market abroad in the shortest possible time, and to create a foreign
earnings revenue stream through a period when the rand was losing ground
against the US dollar.
"It also provided the IDION group with established distribution channels in
North America, Europe, Asia Pacific and South America.
"IDION already earns more than 90% of its income in US dollars, and as
investment is increasingly funded from dollar revenues, IDION has become a
rand hedge share."
IDION advised shareholders that the 65 cents a share offer was not "certain
value" as the bidder claimed.
The offer is conditional on a number of factors, including obtaining
acceptances from not less than 90% of the shareholding other than the
shareholding already held by DataMirror.
Unless DataMirror reaches that 90% target, it does not have to buy one share
more than the 16.4% it currently holds and can simply post shareholders'
acceptance forms back to them.
"Even if you accept the DataMirror offer, DataMirror can decide not to buy
your shares," IDION told shareholders. Directors and management controlling
in excess of 42% of the shares intend to reject the offer.
Tim Keithahn, Chief Financial Officer of Vision Solutions in California,
pointed out that this substantial management shareholding meant the offer
had little chance of succeeding.
"DataMirror has said that it hoped the offer would have the support of IDION
management. Instead, we have unanimous rejection of this offer, in writing,
from management and directors as we all see significantly more value in the
business than DataMirror is offering."
IDION said shareholders who reject the offer should not return the
acceptance form to DataMirror. If shareholders have given their central
securities depositary participant (CSDP) or their broker a mandate to act on
their behalf, these parties should be instructed not to accept the
DataMirror offer.
IDION's corporate communications director, Corne Arnold, said the circular
illustrated the view of the IDION Board that the inherent value in IDION
should be unlocked in shareholder value too.
"Revolutionary technology like ORION is part of our strategy to grow value
in the medium to long term. This includes continued global expansion, which
will further increase our hard currency earnings.
"Our focus is on expanding as a global software company. We already operate
in 70 countries and were ranked South Africa's fourth most global company in
2001," she said.
For further information, please contact:
Corne Arnold, Corporate Communications Director, IDION, tel 011 517 1512 or
083 650 6877
