Saturday, October 30, 2010

Open Text acquires StreamServe. Why should SAP buy Open Text before Autonomy?

Open Text Corporation (NASDAQ:OTEX)  announced last Thursday that it has acquired StreamServe Inc., a leading provider of business communication solutions. The acquisition will add complementary document output and customer communication management software to the Open Text ECM Suite, while enhancing Open Text's SAP partnership and extending its reach in the Nordic market.

StreamServe was a European competitor out of Sweden to my old firm Document Sciences bought by EMC back in 2008.  It should not come as  a suprise to me that Open Text finally bought them as they have been a long-time SAP channel partner like Opne Text. The transaction is valued at approximately USD 71 million. StreamServe offers enterprise business communication solutions that help organizations process and deliver highly personalized documents in any paper or electronic format.

The company's powerful solutions enhance the customer interaction capabilities of the Open Text ECM Suite by enabling the automation of business processes for B2B and B2C markets, including financial services, the public sector, telecommunications and utilities. Designed to address the "last mile" of communication between an organization and its customers, StreamServe's solutions excel at improving and expanding business relationships. With StreamServe's software, companies can automatically create documents through rules-based dynamic assembly and present them to customers, partners, and suppliers, in multiple formats and through whichever channel they prefer.

StreamServe offers solutions that scale across a company's document-driven business processes. The company's solutions are designed for easy integration with ERP and supply-chain systems and applications, including SAP. Open Text and SAP have a 20-year partner relationship, and SAP resells a wide range of Open Text ECM solutions.

Like Open Text, StreamServe has an established reseller partnership with SAP making it a natural fit with Open Text's SAP partner strategy. "From both a technology and partnership standpoint, StreamServe is a complementary fit for Open Text," said John Shackleton, President and Chief Executive Officer of Open Text. "StreamServe brings innovative new technology to the ECM Suite, offering products that automate and personalize customer communication processes, while integrating this functionality with key Open Text ECM solutions."

StreamServe also expands Open Text's presence in the Northern European market. StreamServe has global operations, with a strong presence in Europe, particularly in Sweden, where the company was originally founded. Open Text, which has a long history of successfully supporting acquired products and services, will continue to support StreamServe's products and installed base. Open Text will also integrate StreamServe's technology with the Open Text ECM Suite. "As part of Open Text, we can offer our customers even greater value with an expanded solutions portfolio and the support of a much larger ECM company," said Dennis Ladd, President and Chief Executive Officer of StreamServe. "Together we remain committed to our customers, and we're excited about the opportunities and new solutions we'll be able to deliver as part of the Open Text team."

There has been increasing speculation that Autonomy has been pursuing Open Text to be the last standing takeover target in the niche but high-growth enterprise content management sector. Open Text similar to Stream Serve has been a 20-year reseller partner to SAP with tight back end integration and large installed client base. It would be a mistake for SAP to let Autonomy or any other predator to snap up about 1 billion dollar company that is also filling a critical gap in the SAP platform to better manage and disseminate structured and unstructured data. Besides Autonomy, I would also expect Oracle, Dell, HP and Microsoft to seriously look at Open Text.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Friday, October 29, 2010

Wal-Mart reassesses Massmart bid in South Africa; Can the king of US retailing ever get it right overseas?

Wal-Mart reassesses Massmart bid in South Africa; Can the king of US retailing ever get it right overseas after a series of high-profile failures in Germany, South Korea etc.?  Brand new analysis coming up on The Akbas Post:       
Tell your colleagues your first heard it on and follow @TheAkbasPost

Sunday, October 24, 2010

Austrian OMV pays €1 billion for control of largest Turkish gas retailer Petrol Ofisi

The Austrian state-owned oil and gas group OMV has acquired a majority share of Petrol Ofisi, largest  gas retailer in Turkey from Dogan Holding.

Both companies have been in fierece negotiations for months and OMV said late on Friday that it would pay €1 billion in order to raise its stake in the Turkish company from %42 to %96, thereby helping it establish a strategic bridgehead to the resource-rich Caspian Region and the Middle East. OMV first invested in Petrol Ofisi in 2006 when it paid $1 billion to acquire a %34 share from Dogan.

The owner Aydin Dogan, is under intense pressure as he fights tax fines totalling $3.4 billion levied on the group’s media arm. The agreement came right after a court last week ordered it to pay $628 Million in taxes and fines, raising the running total in tax court rulings against the group to TL1.6 billion.
Turkey’s fast-growing energy sector is attracting investment from both local and foreign groups, as the government sells off distribution grids and generation. Turkey is also the starting point for the OMV-backed Nabucco gas pipeline, which could one day transport gas from the Caspian to the European Union.
Petrol Ofisi, has a %27 share of the Turkish fuels market and a network of 2,500 filling stations. However, its network is older and less efficient compared to its competitors and has been loosing siginificant market share since Dogan Holding has taken it over.
The Dogan Group is one of Turkey’s longest established family conglomerates, owning around half Turkey’s print and broadcast media as well as energy and industrial assets.
The divestment of Petrol Ofisi comes shortly after Dogan Yayin confirmed it had received non-binding bids for some of its media assets, raising the prospect that the group could soon liquidate many of its most significant businesses.
OMV said it did not exclude the possibility of raising equity as a way to fund the new transaction, which must still be approved by regulators and anti-trust authorities.
OMV and Dogan said they would distribute a total of $488 Million in dividends to shareholders before closing the deal.
Tell your colleagues your first heard it on and follow @TheAkbasPost

Wednesday, October 20, 2010

Autonomy to announce large acquisition, Webtrends and Open Text among rumored targets

Autonomy Corp., remains on track to announce an acquisition this autumn, according to its CEO Michael Lynch. The comments Lynch made came unprompted during the company’s 19 October Q3 2010 earnings call.

The CEO said: “I’d just like to talk a little bit about M&A, although obviously there are no guarantees until the ink is drying, Autonomy is still very much on track to announce the acquisition other than it’s being talking about in line with its original timescale of the autumn." 

Open Text, the listed, Canadian ECM solutions company with a market capitalization of $2.6 billion, has most frequently been flagged as a potential target for Autonomy. 

Webtrends, a private equity owned Portland, Oregon-based web analytics and solutions provider was also recently named as a target. Webtrends was featured in the Portland Business Journal in late 2007 as potentially being valued at $1billion.

An acquisition would not take the market by surprise, given that Lynch stated that the GBP 500 million bond offering it announced at the beginning of the year “will enhance our ability to engage with potential acquisition targets and take advantage of opportunities as they arise later in the year.” 

In yesterday’s earnings call Lynch went on to outline the kind of acquisitions Autonomy engages in which, he said, is unlikely to include a very “left-of-field area.” “We tend to like to run the playbook that we have used before and has worked so well for us. Now, consequently, these acquisitions tend to be accretive in the short term, the reason being that we will take normally an organization which is not performing at the top end of the market or not be the number one.”

“We will take that and replace the fundamental technology with IDOL, thus servicing a new customer base. That means that that product – a company tends to move from one that’s having to customize everything for customers – an impure model – to a pure model, and that is what changes the margin construction. And you can see the history of those deals that we’ve done in the past.” 

“Now, whilst that might be the mechanism, the important thing to say is that these are done for strategic reasons. So with Verity we created the de facto standard in the market which has been so good for the company since 2005. With Interwoven we produced the chaining between law firms and corporate clients which has driven our leadership in eDiscovery.”

“And in ZANTAZ we’ve owned the infrastructure inside large corporates, which again is an example of us investing in something which means that we have long-term ownership of our customer base; very much what the strategy is about. So when you come to see the work that we have been doing in this area, it is important to understand it in the context of this playbook.”

While the CEO is right about their track record with acquisition, it is virtually no guarantee that the company can take on such complex buyout.  The company needs to make a sizeable acquisition to keep growing. With massive consolidation wave in the enterprise content management now being largely over, Open Text and Autonomy are the only remaining takeover candidates. Autonomy's likely merger with Open Text would be largest by deal size to date and could create significant post-merger integration challenges for the company. Webtrends could be as significant and perhaps more complelemtary than Open Text.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Saturday, October 09, 2010

China secures ‘strategic partnership’ with Turkey building the New Silk Road

You should have witnessed the tone of the press conference by two prime ministers – Turkish Prime Minister Erdogan hosting the Chinese Premier Minister Wen – yesterday.
There was also another briefing for prominent Turkish business leaders today in Istanbul.

China and Turkey signed eight pacts on cooperation in areas that included trade, railway construction, infrastructure, communications and cultural exchanges before the press conference.  "China and Turkey have a long history of friendship. Our relations are now entering a new stage of development," Erdogan told reporters.

The tone of the meeting was quite confident and upbeat: Turkey and China want to increase bilateral trade to $50 billion within five years. China is already second richest economy in the world soon to take on the US. Turkey is bolder politically and stronger than most European Union nations economically.
Both nations aim to strengthen political and business ties between two of the fastest
growing economies in the Group of 20. Turkey looks set to rival China as the
fastest expanding big economy in 2010, with IMF now forecasting growth of about 8%.
The Chinese premier inked a new “strategic partnership” and said he recognised Turkey’s “power and influence in the international community and its region”, sealing agreements to co-operate in energy, transport and infrastructure.
Like China, Turkey is now seeking a more active part on the global stage, and extending its economic reach into sub-Saharan Africa, the Middle East, Balkans and former Soviet Union. But annual bilateral trade of around $17 billion is at present skewed heavily in China’s favour.
Ankara now wants to rebalance and strengthen the economic relationship by winning more Chinese investment, presenting Turkey as a base to do business in Europe and the Middle East. There are multiple fields where Turkey and China could further cooperate, such as energy, air transport, culture and tourism.
Turkish prime minister Erdogan, told Friday’s news conference that “with suitable financing”, the two countries could build a “modern silk road” with Chinese involvement in a new rail network stretching more than 4,500km.
The China Railway Construction Corporation, with a loan backed by Beijing, is already building a section of a new Ankara-Istanbul high-speed rail link. Chinese companies are likely to compete in future tenders, especially to supply rolling stock.
Mr Erdogan said trade would in future be conducted in lira and renminbi, rather than in
dollars. The leaders also discussed “close co-operation” in energy, where Turkey is privatizing state assets and rapidly expanding renewable and thermal generation. 
Turkey wanted closer cooperation with China in international organizations, Erdogan said.
The agreements signed by ministers covered co-operation on infrastructure in third
countries – suggesting Turkish and Chinese contractors could collaborate on
projects in Africa and the Middle East, where they now compete fiercely.
It will be a kind of “co-opetition” initially; The New Silk Road countries need to learn how to collaborate among themselves rather than competing fiercely. China and Turkey for example are competitors in textiles, electronics and automotive but China needs transportation hubs in the region where Turkey lies right in Europe’s backyard.
Political and economic alliances will need to be immediately followed by tighter business
cooperation arrangements sponsored by governments. Having lived and done deals in
both China and Turkey, it is fair to say that conducting business in the New Silk Road
nations is drastically challenging and different than in the Western world.
However, a Turkish businessman for example is much better equipped - culturally, socially, experiencewise - to do business in China than lets say a French or American business owner. At the end of the day, it is not enterprises that do business but people.
Yesterday’s “emerging nations” in the words of developped countries have in fact emerged.
The future of global trade and business has shifted to the New Silk Road …Bilateral trade among the New Silk Road economies will account more than half of global trade by the end of the next decade. The key strategic questions remains as to how the developped world coud respond…
Tell your colleagues your first heard it on and follow @TheAkbasPost

Friday, October 08, 2010

Microsoft to Bid For Adobe

Shares of Adobe soared in heavy trading yesterday on a report that Microsoft CEO Steve Ballmer discussed a possible buyout of the company.

Based on the old saying "my enemy's enemies are my friends", Microsoft and Adobe have been long discussing joining forces agains Apple's control of the cell phone market.

Neither Microsoft nor Adobe had any comment. Both software companies are extremely successful software franchises with little or no overlap in their respective businesses. Adobe Systems Inc., based in San Jose, Calif., makes software such as Photoshop and the Flash technology used for Web videos and games. The company has been in a long-standing feud with Apple Inc. over Flash, which Apple bans from mobile devices including iPad and the iPhone.

Microsoft controls the office market in terms of content authoring via its Office franchise.  Adobe n the other hand controls the creative & digital publishing content supply chain. Merging the two firms would dominate how content is created, managed and distributed in every industry with serious implications to content-rich industries.  Even if a deal were to be hashed out due to anti-trust regulatory concerns over the companies' overlapping products, such as Flash and Microsoft's Silverlight, could prevent it from going through.

An Adobe acquisition would be a huge one for Microsoft, whose last big purchase was in 2007, when it bought aQuantive Inc. for $6 billion. A proposed deal to buy Yahoo Inc. the following year fell apart when Microsoft withdrew a $47.5 billion bid. Adobe's market cap is close to $15 billion.

Adobe ended the session up nearly 12 percent at $28.69, with trading volume more than six times the average. The shares were briefly halted earlier in the afternoon after they hit as high as $30.
In after-hours trading, the stock slipped 14 cents to $28.55. Microsoft ended trading up a dime at $24.53.
Tell your colleagues your first heard it on and follow @TheAkbasPost

Sunday, October 03, 2010

HP Hires Ex-SAP Chief Apotheker as CEO. Why Is SAP/HP Merger Inevitable Now?

Léo Apotheker introduced himself as Hewlett-Packard’s new chief executive to Wall Street analysts on Friday on a conference call.
“H.P. should be more valuable than the sum of its parts,” Apotheker said. “Software is sort of the glue to make that happen.”
Investors, however, continued to voice their dissatisfaction with Leo Apotheker’s arrival, sending H.P.’s shares down about 4 percent to $40.42 during midday trading on Friday.
Mark Hurd drove HP very hard with brutal cost-cutting and restructuring laying off about 50,000 during his tenure. Following his ouster by the HP Board, he immediately landed a job with Larry Ellison at Oracle. 
HP Board continued to surprise investors, analysts, customers and even its own employees; They abruptly fired Hurd, then sued him not to join Oracle but then settled it shortly. Once again they passed over HP's internal candidates to hire ex-SAP chief who lasted only about seven months as sole chief executive of SAP.  He presided over major product delays, upset the company’s customers by raising prices during the heart of the recession and has never run a business near H.P.’s size and diversity.
This appointment tells me that HP will now be all about selling to large clients, repairing employee morale with a lot of pep talk and boosting software business to better compete against IBM and fend off Oracle that will come after HP's hardware franchise aggressively with Hurd's new role. 
I would see an inevitable merger of HP and SAP. HP's software business has been lackluster at best. The company is so desperate that they recently bought 3Par at an irrational multiple in a bidding war with Dell.  Unlike IBM, HP is still a hardware company.  As services and software converge in the enterprise giving rise to cloud computing opportunities, HP is even more pressed to build out a substantial software business.  We would agree with Apotheker that software will play even bigger role " as glue" going forward.
SAP is the largest independent business software company without a strategically compelling investment case to investors. Oracle or IBM or Microsoft would not be able to buy SAP. The only logical candidate is HP. Leo's appointment should now accelerate the inevitable merger between HP and SAP sooner or later.

Tell your colleagues your first heard it on and follow @TheAkbasPost

M&A Deals Soar to $21 Billion in Shale Gas Sector in First Half

US shale gas has been a key theme in upstream M&A over recent years. It has the potential to fundamentally alter the supply and demand dynamics of natural gas industry worldwide forever.

According to the latest report by
Wood MacKenzie,  during the first half of 2010, acquisition spend in the sector amounted to $21 billion, equivalent to around one third of global upstream M&A expenditure.  The value of the market has increased with the emergence of shale gas as a world scale source of secure, long-term gas supply.

The investments were up sharply from the $2billion spent in the first half of 2009 and beat the $19.7 billion spent in 2008. The gas boom has increased projected US supplies at current usage to 100 years, up from 30 years a few years ago. It has been fuelled by a technological breakthrough enabling producers to extract gas viably from shale rock.

The technology, which combines horizontal drilling with hydraulic fracturing of the rock, is expensive and Wood Mackenzie says the high, upfront costs associated with the initial testing and subsequent full-scale development of shale gas resources were in many cases prohibitive.

This is particularly true for companies with high levels of debt and cash constraints, which fits the description of many of the small, independent producers in the US that have been in on the ground floor of the boom.  It is this need for capital that gave rise to the shale gas partnerships, which Wood Mackenzie says underpinned much of the recent merger and acquisition activity.

In May, for example, Temasek, the Singapore state investment fund, and Hopu Investment Management, a Beijing-based group, agreed to buy $600 million of convertible preferred stock in Chesapeake Energy. This followed other deals by Chesapeake with Total of France, the UK’s BP and Norway’s Statoil Hydro to help fund development.

Many of the companies forming partnerships were doing so to divert capital towards opening up new shale plays with the latest trend being a shift toward shale oil projects.

The increased need for financing gives the well-funded majors strong buying opportunities. This year, ExxonMobil completed its $41bn acquisition of XTO Energy and Shell announced a $4.7billion acquisition of East Resources.

While it appears to be a US focused momentum, we believe shale gas may be abundant in many geographies outside US as well but given US' dependency on LNG oil & gas enterprises have been chasing deals in North America so far. We will likely see more deals in Europe and even Far East starting from second half of next year.

Tell your colleagues your first heard it on and follow @TheAkbasPost

Emerging Markets Point the Way Forward

By Lina Saigol
Financial Times, September 27 2010

New direction: companies in emerging markets are increasingly looking to international acquisitions

For the past three years, the mantra among global dealmakers was that emerging markets would pick up the slack as their US and European counterparts hunkered down. This now appears to have come true as companies in developing countries cement their position as a new breed of global dealmakers. Although Asian economies have not been immune to the global financial crisis, the region’s capacity to overcome the downturn, while western economies are still suffering, has confirmed the notion that the balance of commercial power is shifting from west to east. 

Chinese investment is surging in Africa, Latin America and south-east Asia, while Russian and central Asian natural resources companies are looking to list shares in Hong Kong. This has resulted in companies in emerging economies recording a 25 per cent increase in cross-border deal activity in the first six months of the year, according to KPMG’s latest annual Emerging Markets International Acquisition Tracker. 

“Emerging-market companies have become acutely aware of the global dimension in which they operate. They are fast learners and will be after intellectual capital, access to developed markets and, inevitably, commodities,” says Carlo Calabria, vice-chairman at Bank of America Merrill Lynch. South-east Asia has been the most popular destination for inbound deals, with China ahead of India as the next most popular market, KPMG’s analysis found. Jeremy Fearnley, head of M&A at KPMG Corporate Finance in Hong Kong, notes that dealmaking confidence is returning far more quickly for emerging economies than for their developed-market counterparts.

 “One reason for this trend is that emerging economies are capital rich,” he says. “In the case of China, for example, there is increasing demand for commodities in this market as it continues to industrialise and invest heavily in infrastructure.” 

The race to acquire natural resources is fierce, with Chinese, Indian and Brazilian companies all competing for assets. As a result, the tactics of acquisitive companies are starting to mirror those of their western counterparts. Korea National Oil’s $1.87bn cash bid for Dana Petroleum, the UK oil explorer, shows just how aggressive some companies are prepared to be to secure their targets. The bid is the first of its kind launched by a state-backed Asian company that may have seen similar deals slip away because it was too timid in its pursuits. The South Korean group wants to double its production to 300,000 barrels a day, and buying Dana is central to achieving this goal, especially at a time when global oil assets are not getting any cheaper.

“The other side of the coin is the emerging-market domestic consumption story, where we continue to see increased demand for western products and brands,” says Mr Fearnley. “The focus of Chinese outbound acquisition activity is therefore introspective as buyers seek to acquire more established western brands to sell into their domestic market.” The services industry in China accounts for roughly 40 per cent of China’s gross domestic product in 2009, compared with roughly 75 per cent in the US, suggesting there is considerable room for growth.
But mergers and acquisitions activity is not flowing only one way.

On the hunt for growth, companies in Europe and the US are taking advantage of good valuations to position themselves for the new world economy. Having spent the past two years cost-cutting and repairing their balance sheets, S&P 500 companies are flush with cash that they are keen to put to use via M&A. “US corporates are clearly interested in strategic emerging-market opportunities. Equally, some of the emerging-market leaders are looking cross-border and taking advantage of significant liquidity, strengthening exchange rates and a more positive local economic climate,” says Glenn Schiffman, head of investment banking for the Americas at Nomura.Wilhelm Schulz, head of European M&A at Citigroup, says that with the likelihood of another macroeconomic shock receding, European corporate boards have also started to execute their long-planned M&A strategies. “This – across most industries – involves geographic diversification and gaining scale to combat muted organic growth prospects at home,” he says. 

BHP Billiton’s recent hostile $39bn bid for PotashCorp, the world’s biggest fertiliser maker, comes at a time when global demand and output for the potash business are expected to increase dramatically. The Paris-based International Fertilizer Industry Association estimates that potash demand could rise by almost 20 per cent this year, from an estimated 49m tonnes of potassium chloride to 58.7m tonnes in 2014 – and BHP wants a large slice of that. Financial services companies are also looking to emerging markets for expansion.

 Santander, the highly acquisitive Spanish bank, recently won an auction for a controlling stake in one of Poland’s largest banks. It fought off stiff competition from European rivals to purchase the 70 per cent stake of Bank Zachodni WBK that Allied Irish Banks has been forced to sell as a condition of the state aid it has received from the Irish government. HSBC, meanwhile, is in exclusive talks to buy 70 per cent of South Africa’s Nedbank, giving the world’s biggest bank outside China a significant foothold in Africa. 

With dealmaking in emerging markets outpacing the US and Europe for the first time in years, many of the new merger arbitrage funds have shifted their focus to Latin America and Asia. These funds aim to profit from the difference between a target’s share price after a takeover announcement and the closing price at completion. There is roughly $15bn in funds specifically focused on merger arbitrage worldwide, estimates Hedge Fund Research, although other event-driven funds also invest around deals. 

One of the biggest trades for merger arbitrage funds at the moment is BHP’s bid for Potash. Since going public with its offer, more than 145m shares in the Canadian fertiliser company have been traded, and BHP is hoping these will help influence the outcome of the deal. Likewise, hedge funds including Jabre Capital have taken positions in Dana Petroleum following Korea National Oil’s offer. The Korean group needs acceptances from 75 per cent of shareholders before it can delist Dana from the London Stock Exchange, and 90 per cent before it can begin a squeeze-out process. If it succeeds in reaching its target, it may provide peers in the region with the impetus to become more aggressive when pursuing western targets. But while investors may welcome more emerging-market activity, they will not approve any deal at any price.

Prudential was one of the first companies to discover this after shareholders forced the UK life assurer to abandon its $35.5bn attempted takeover of the Asian assets of AIG, the US insurance group. Investors holding more than 20 per cent of the Pru were concerned that the economics of the deal left virtually no margin for error in delivering the promised returns and cost synergies. But while it is inevitable that some of these deals will fail to succeed, the impetus to keep trying is unlikely to wane. International companies that in the past have dismissed emerging-market M&A as nothing but a passing phase have taken stock of reality: the new breed of dealmakers is here to stay.
Tell your colleagues your first heard it on and follow @TheAkbasPost