|
DataMirror Launches Hostile Takeover of Rival Vision Solutions
by Timothy Prickett Morgan
There probably are not many rivalries as intense as that which exists among the vendors of high availability and clustering software for the OS/400 platform. The big three companies in that market--DataMirror, Lakeview Technology and Vision Solutions--compete so fiercely with roughly equivalent but incompatible products that it is tough to imagine any of them ever merging. But by launching a hostile takeover for Idion Technology Holdings, Vision Solutions' parent company, last week, that is exactly what rival DataMirror obviously believes makes sound business sense.
Idion, which is based in South Africa and whose stock trades on the Johannesburg Stock Exchange, bought Vision Solutions through a complicated merger agreement in March 2000 for $62.5 million in cash, and is obviously not all that enthusiastic about selling Vision Solutions plus all of its other business units in an all-cash transaction valued at $6.2 million. Ironically, DataMirror is at this low price paying a 70 percent premium for Idion based on the average trading price for that company's stock over the prior month. This is a pretty hefty premium in terms of market capitalization--HP, by contrast, is only paying a 15 percent premium to acquire Compaq, whose stock price, like Idion's, has been hammered in the IT sector downdraft after the dot-com bubble burst. DataMirror and a wholly owned subsidiary already own 16.4 percent of Idion, so the DataMirror offer to Idion shareholders puts a value of the company at around $7.4 million.
That said, $7.4 million is not much of a price premium for Idion, which had revenues of approximately $19.4 million in 2000 and $21.7 million in 2001. DataMirror, which is based in Toronto and which trades on the Toronto Stock Exchange and the NASDAQ markets, had revenues of approximately $38 million in 2000 and $35 million in 2001. (All figures in this story are estimates in U.S. dollars, just to keep it simple.) However, Idion booked a loss of over $26.6 million in 2001. That is one of the reasons why the market capitalization of Idion has dropped to around $4.3 million even though its Vision Solutions unit added 229 new customers last year, for a total of 1,750 customers, and increased revenues by 21 percent. DataMirror, which is also losing money, posted a loss of $3.6 million in 2001 compared to a profit of $2.9 million in 2000. But DataMirror's stock price has been increasing in recent months, giving DataMirror a market capitalization of around $86 million as we go to press.
DataMirror's stock has had its ups and downs, too, however. It was trading at around $5 a share in late 1999, rocketed up to nearly $30 a share in early 2000, lost half of its value again a few months later, started up again and crested above $25 a share, and then fell back to $2.70 a share in 2001. Since late 2001, the company's share price has hit a 52-week high of $8.59 a share, and its shares were off about 15 percent after announcing the deal. DataMirror, to put it bluntly, could have found itself in the position of being taken over in a hostile manner by any number of rivals in the high availability or data transformation market. -One possible candidate could have been Ascential Software, the data transformation remnant from the former Informix database company that had $1 billion in the bank after selling its database business to IBM. But no matter how far DataMirror's stock has fallen in the past two years, it probably could have never been acquired for less than $35 million (that assumes a 20 percent premium over the lowest market cap Vision had in 2000). Ascential certainly had that money, and it could have bought DataMirror's transformation business and sold off the HA business to either Lakeview or Idion. But that didn't happen. (Incidentally, neither did the rumored merger between Idion and H.A. Technical Solutions, a provider of HA software for the Unix market that has expanded to support HA clustering for Linux partitions on the iSeries. Idion said when it bought Vision Solutions that it would make acquisitions in the Unix, Linux and Windows HA markets.)
And the hostile takeover of Idion by DataMirror may not happen, either. Executives from both Vision Solutions and DataMirror gave me the brush off last week as they tried to sort out their next moves. DataMirror apparently made the offer to Idion on March 16, and the offer was rejected by Idion's CEO and founder Niccolas Vlok. So DataMirror announced the hostile takeover on March 18. That was also the same day that Idion named Vision Solution's chief technical officer, Alan Arnold, its president and chief operating officer, in an obvious move to keep him on board. (Vlok had been operating as president prior to that time.) Another personnel move that no doubt fanned the flames of market rivals occurred in early January when David Wegman, who used to head up marketing at Lakeview, was named executive vice president of marketing and development at Vision Solutions.
Knowing the animosity that these companies hold for each other, DataMirror may have calculated that the chances that Vlok and his management team would endorse an acquisition of Idion for such a low number were small, but that launching the deal would highlight the fact that, at least as far as investors in three different stock markets are concerned, Idion is not worth nearly as much as DataMirror in terms of market cap. And no matter what Vlok and his team want, stockholders may have a different opinion of the deal and they may go for it unless Idion comes up with a scheme to prevent the takeover.
Whether or not the hostile takeover is good or bad for the OS/400 market is anyone's guess. The Vision Suite HA software and Symbiator data integration software overlap the DataMirror High Availability Suite and Transformation Server products, and odds are that DataMirror would not be able to cleanly merge these two sets of programs while providing compatibility to existing customers. If the products can be merged in some way--perhaps because of the underlying clustering support that Vision Solutions helped IBM put into the plumbing of OS/400--then it may end up being a positive thing for customers. It seems unlikely that merged DataMirror-Idion could keep all four product lines alive and be profitable, particularly since neither company is at this moment profitable separately. Something would have to give, unless there is a sudden uptick in sales of HA and database transformation software in coming quarters that would allow the merged DataMirror-Idion to afford to keep all the products alive. Because of the secrecy and intricacies of sales in this OS/400 HA market, it could be that the main cost of sales is trying to sell against two competitors instead of one, and that DataMirror, which is behind Vision Solutions and Lakeview in HA sales for OS/400 customers, reckons it will be able to beat Lakeview if it owns Vision Solutions.
The other thing to remember in all of this is that DataMirror has effectively put Idion into play by pointing out what a bargain it would be to buy it at its current market cap. This fact is probably not lost on other players in the HA and clustering software market. Other bidders may emerge before too long.
|
