IBS Issues New Shares to Raise Capital, Reorganizes Operations

Published: June 2, 2008

by Timothy Prickett Morgan

Swedish ERP software provider International Business Systems, a long time supporter of the OS/400 and i5/OS platform, has announced that it is working with investors to issue new shares in the company as a means of building up a pile of cash that will fuel its ongoing reorganization efforts and gird its loins to do battle globally against its competitors in the midrange market.

Back at the end of April, IBS said in an announcement in Europe that it was proposing to raise as much as 400 million Swedish krona (around $68 million at exchange rates last week) through a new share issue at 9.5 krona a piece. Investors in existing Class A or Class B shares could trade up to the new Class A or Class B shares by turning in two old shares for every new one, and Deccan Value Advisors, a hedge fund and investment company located in Greenwich, Connecticut, has agreed to buy up any extra shares that existing shareholders don't pick up. (This seems like a complex way to do a two-for-one reverse stock split while selling new shares to an investor, as far as I can tell.) Deccan already has an 8 percent stake in IBS, and the issuing of new stock will put about 42 million shares out. According to a statement put out by IBS, Deccan is fully guaranteeing the issue, meaning that any shares not traded up will be covered by Deccan, effectively making it a cash infusion to the company and an increase in Deccan's stake in IBS. On May 20, the IBS board of directors authorized the issuance of 1,575,000 Class A shares and 40,229,015 Class B shares, which current investors can subscribe to between June 10 and 27 at the 9.50 SEK price. The extra funds will be used to accelerate the offshoring of product development to Russian software labs and to target various industries on a global scale rather than having IBS operate different units in different geographies across many industries.

In mid-April, IBS warned investors that license sales out be weaker in both the United States and in Europe for the company's IBS Enterprise software suite. In the first quarter ended March 31, IBS posted sales of 484 million SEK, down 11 percent, with software license sales of 85 million SEK, down 16.7 percent. The company's hardware sales (including System i servers) fell by 23 percent to 100 million SEK, and the company booked a net loss of 46 million SEK, a lot worse than the 9 million SEK loss it booked in the year-ago quarter. As part of its restructuring, IBS has eliminated 120 employees in the past year.

In conjunction with the new share sales, IBS is pushing out its second quarter report from July 18 to August 8.

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