| Wed 24 Apr 2002, 0:00 | | Response By Idion To The Revised Offer By Datamirr |
|
IDION Technologies Limited
("IDION")
Dear Shareholder
THE BOARD RECOMMENDS THAT YOU REJECT THE REVISED DATAMIRROR OFFER
You should by now have received details of the revised offer dated 18 April
2002 from a wholly owned subsidiary of DataMirror Corporation (collectively
"DataMirror").
Summary of the revised offer
In summary, the original offer is amended, inter alia, as follows:
1. the offer consideration is increased from 65 cents per IDION share to
120 cents per IDION share;
2. the minimum number of IDION shares required for the revised offer to
proceed (which requirement can be waived by DataMirror) is reduced from 90%
of the shares not already owned by DataMirror to 50% plus 1 share of IDION's
total issued share capital; and
3. the closing date for the revised offer is extended from 19 April 2002
to 15 May 2002.
In the Circular to you of 9 April 2002, we advised you that".THE BOARD
RECOMMENDS THAT YOU REJECT THE DATAMIRROR OFFER ...", based on the
independent advice of PricewaterhouseCoopers Corporate Finance and the
independent committee of non-executive directors.
Based upon the five pillars of inherent value of IDION, the value of the
business of IDION is significantly in excess of the value ascribed to IDION
in terms of the original offer by DataMirror.
The advice of the Independent Advisers and the Board
Upon receipt of the revised conditional offer of 120 cents per IDION share,
the Board once again referred it to the independent committee of non-
executive directors who in turn sought the independent advice of
PricewaterhouseCoopers Corporate Finance. The substance of the advice of
PricewaterhouseCoopers Corporate Finance is that they are of the opinion
"that, as at 22 April 2002, the amount of the Revised 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."
BASED UPON INDEPENDENT ADVICE RECEIVED, THE BOARD ONCE AGAIN STRONGLY
RECOMMENDS THAT YOU REJECT THE REVISED OFFER AND RETAIN YOUR SHARES IN IDION
TO ENABLE YOU TO BENEFIT FROM THE INHERENT VALUE OF IDION INTO THE FUTURE.
A copy of the letter from PricewaterhouseCoopers Corporate Finance is
available for inspection at the registered office of IDION.
We further advise that the management within IDION and its subsidiaries who
are shareholders in excess of 44% and other shareholders (including
institutional investors) holding a further 11% have irrevocably undertaken
to reject the revised offer.
DataMirror advised that at the date of the revised offer they had received
acceptances from shareholders holding 247 438 shares representing only 0,2%
of the issued share capital.
In terms of Rule 24.1 of the Securities Regulation Code on Takeovers and
Mergers, it is reported that there have been no material changes to the
information contained in the Circular dated 9 April 2002 apart from the
following changes:
Director Date purchased Average price Number of shares
N Vlok 9 April 2002 93.14 cents 402 742
K Jarvis 9 April 2002 93.14 cents 79 500
N Vlok 11 April 2002 100.49 cents 846 250
N Vlok 22 April 2002 121.40 cents 135 400
Why we believe you should hold your IDION shares
IDION is now at a stage where:
- Two years of investment in research and development, distribution and
marketing and the infrastructure enhancements necessary to support the
growing customer base is starting to pay off;
- The world-wide customer base is solid and growing with a retention rate
in excess of 95%;
- Sales are increasing on a steady basis as market coverage continues to
expand through a worldwide channel model;
- Solutions leadership in a market estimated by Gartner to be growing at
a compound rate of 25% per annum;
- Our new ORION technology
- opens up large new markets and opportunities;
- presents a first to market opportunity - with an ability to leverage
the company's sizeable installed base in the IBM iSeries market. IDION
knows of no competitor managing availability across additional multiple
servers, databases and applications; and
- opens a potential market of US$5 billion (Gartner);
- Our new Symbiator 4.0 technology was successfully launched on 15 April
2002 and has been well received by the market. This will enable us to
continue to grow our data sharing and data integration market share and to
compete effectively with the core offering of DataMirror;
- Action has been taken to achieve results in IDION Solutions.
Retrenchments were completed in the first quarter as a major contributor to
aligning revenue with expenses. IDION Solutions continues to develop its
close relationship with Microsoft South Africa; and
- Our highly experienced and respected management team who continue to
increase their shareholding in IDION because they believe in the future of
the company.
The market is beginning to appreciate the true inherent value of IDION as is
evidenced by recent statements made by analysts including significant
institutional shareholders such as Sunil Shah of Coronation Asset Management
and Dion Nothard of Metropolitan Asset Managers.
The truth about DataMirror's claims in its revised offer
Are IDION'S financial prospects and the stated expectations of management
optimistic?
The truth about the current financial and trading position of IDION
In the Circular to shareholders dated 9 April 2002, we advised you that:
- The Group continues to generate cash from operations;
- Sales of new licences and of maintenance contracts by Vision Solutions
are well up on those of the first quarter of 2001;
- Deferred revenue (representing contracted future annuity income)
continues to grow strongly;
- Our world-wide customer base is now in excess of 1 800;
- The Board continues to be satisfied with the outlook for 2002.
DataMirror has attempted to cast aspersions on the veracity of the
information provided and has suggested that the information provided is
optimistic. The Board continues to be satisfied that the information
provided has been prepared in accordance with accounting principles
generally accepted in both the United States of America and South Africa on
a consistent basis with the year ended 31 December 2001. The Board is also
satisfied that all statements have been made after careful consideration and
that they correctly reflect the actual trading conditions encountered.
Has IDION had negative cash flows over the past two years?
The truth is that IDION has not had negative cash flows over the past two
years. In fact, as reported in the audited financial statements, IDION
generated cash flows from operating activities for the year ended 31
December 2001 of R12,1 million and used R10,7 million in the previous ten
month financial period. This resulted in net cash generated from operating
activities of R1,4 million for the 22 month period.
Has IDION taken account of the expectation that global technology markets
will continue to be soft during the first quarter of 2002 and that the
outlook for the rest of the calendar year remains uncertain?
The truth is that IDION has taken these circumstances into account in
preparing budgets for the year. IDION has, in anticipation of the expected
continued slowdown, aligned the business model and expense structure to meet
projected revenues so that the business will be profitable notwithstanding
the economic climate. In the circular of 9 April 2002, IDION acknowledged
that the global technology markets are likely to continue to be soft in 2002
and that conditions may remain uncertain. Hence the conservative outlook
for the year.
DataMirror has conflicting views about the outlook for the year:
"We see general business conditions improving and we believe that there is a
strengthening of the market in the North American market place which will
have benefits for us in Q1 and Q2 and throughout the 2003 fiscal year." -
CEO Nigel Stokes at the announcement of DataMirror's Q4 fiscal 2002 results
on 11 March 2002.
"DataMirror believes . global technology markets continued to be soft during
the first quarter of 2002; and the outlook for the rest of the calendar year
remains uncertain" - the revised offer document from DataMirror dated 19
April 2002.
Is DataMirror the largest single shareholder in IDION?
The truth is that Nicolaas Vlok, with a total shareholding of 19 787 885
IDION shares as at the date of this announcement, representing 17,58% of
IDION's issued share capital, is the largest shareholder in IDION.
DataMirror's "strategic investment"
DataMirror states that it regards its shareholding in IDION as a strategic
investment and wishes to further increase its shareholding in IDION at this
time.
Whilst DataMirror appears to regard this as a strategic acquisition, no
discussions have been held with IDION management to gain an understanding of
the proposed strategic fit. In any event, the stated rejection of their
offer by more than 50% of IDION shareholders will mean that DataMirror will
not be in a position to impose its plans.
DataMirror further states that if it successfully increases its shareholding
in IDION it will be in a position and may act as a strategic partner to
IDION in achieving its objectives. This may include the provision of
capital and/or merging of certain business interests on mutually acceptable
terms.
IDION does not have the necessary information to enable it to understand and
address the strategic thinking of DataMirror. It is therefore not possible
to assess whether there would be any benefits to IDION arising out of
DataMirror's implied intentions. Based upon general market knowledge,
IDION's management is of the opinion that:
- The high availability product of DataMirror is not considered to be
competitive with that of IDION and maintains a very low market share;
- DataMirror has adopted an expensive direct selling model for 79% of its
business and currently has a limited channel partner network;
- Symbiator 4.0 is proving to be an excellent alternative to DataMirror's
data-sharing products;
- IDION has more top level customers in more companies and in more
countries than DataMirror;
- DataMirror by its own admission is losing customers; It experienced
cancellations in the fourth quarter: "the drop off was more than had been
expected"; and
- DataMirror's revenue continues to decline despite revenue consolidation
through acquisitions.
Furthermore, it is re-iterated that IDION does not require additional
capital for the foreseeable future to fund its business.
Experts agree that the true inherent value of IDION is much higher than is
currently reflected in the share price.
The market is beginning to appreciate the true inherent value of IDION as is
evidenced by recent statements made by the following significant
institutional shareholders:
Sunil Shah of Coronation Asset Management stated in an interview with
Moneyweb on 19 April 2002 that in his opinion "the higher offer was "closer
to reality" but still a pale comparison to the intrinsic value of the
company". He also is quoted as saying that "he will still not accept the
120c offer, raised from 65c at the outset. Shah said the initial bid
completely ignored that IDION was not in a precarious financial position nor
did it take recent launched new technology (the Unix initiatives and the
ORION platform) into account."
Dion Nothard of Metropolitan Asset Managers said in Business Day on 22 April
2002 that he believes the software of Vision Solutions is outclassing
DataMirrors' products, and has brighter prospects on its own. IDION's
future should not be decided by the value of its shares, but on whether
DataMirror was the best partner for the company, he said. "Investors should
look at the potential for its technology and realise it has a far higher
value".
In summary, DataMirror is trying to make a misguided, vague and unproductive
commercial approach in the guise of a hostile bid.
TO REJECT THE DATAMIRROR OFFER YOU MUST DO NOTHING - DO NOT RETURN THE
DATAMIRROR ACCEPTANCE FORM. IF YOU HAVE GIVEN YOUR CSDP OR BROKER A MANDATE
TO ACT ON YOUR BEHALF, INSTRUCT THEM NOT TO ACCEPT THE DATAMIRROR OFFER.
Yours sincerely
P L McDonald Chairman
N Vlok Group Chief Executive Officer
Joint corporate adviser and sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Ltd
(Registration number 1970/003711/07)
Joint corporate adviser
Corpcapital Corporate Finance
Legal adviser
Bowman Gilfillan Inc.
(Registration number1998/021409/21)
Independent adviser
PricewaterhouseCoopers Corporate Finance (Pty) Ltd
(Registration number 1970/003711/07)
A copy of this letter will be posted to IDION shareholders on 25 April 2002
