RNS Number:7593N
SDL PLC
20 June 2005
20th June 2005
SDL PLC
PROPOSED ACQUISITION OF TRADOS
The Board of SDL announced today proposals to acquire for a maximum aggregate
consideration of $60.0 million (#33.0 million), the intellectual property in
TRADOS and all of the outstanding issued shares of TRADOS. This includes $7.8
million (#4.3 million) in relation to the TRADOS Management Incentive Plan. The
above transactions will be satisfied by a cash consideration of $50 million
(#27.5 million) to be funded from new bank facilities of #20 million and the
balance from the existing cash resources of the Company and by the issue of
Ordinary Shares in SDL with a value of up to $10.0 million (#5.5 million).
TRADOS Incorporated, a Delaware corporation, provides translation software that
enables global businesses to operate more efficiently in foreign markets by
automating key processes associated with the authoring, localization and
publishing of enterprise information.
TRADOS products are used in over 3,500 enterprises, and it enjoys a significant
market share of the translation memory solutions market. TRADOS products and
services are tailored to meet the application and infrastructure software needs
of three distinct market segments: (i) global enterprises; (ii) localization
service providers; and (iii) freelance translator professionals.
The acquisition is conditional, inter alia, upon the approval of SDL
Shareholders at an Extraordinary General Meeting to be convened for this
purpose.
SDL plc is today holding an analyst presentation in relation to the proposed
acquisition. If you would like to attend please contact Financial Dynamics at
the number given below.
Background to and reasons for the Acquisition
- Proliferation of global operations and rapid convergence of data to
digital format, create a real need for a cost effective, multi-lingual
information management system on a global scale
- By combining the technology, R&D, customer relationships and sales
and marketing capabilities, the Enlarged Group will offer a stronger and more
competitive offering in the Global Information Management ("GIM") market with
the breadth and scale that the market demands
- The Board believes the acquisition to be in the best interests of
Shareholders for the following reasons:
o TRADOS is a leading provider of translation software products. It has a
wide customer base, proprietary technology and is well regarded in the
translation industry;
o the Acquisition represents the opportunity to strengthen SDL's position
in the translation software sector through the integration of SDL's technology
and TRADOS's product, market and technical knowledge;
o the Acquisition represents the opportunity to accelerate the
development of the next generation of translation software based on open
industry standards by bringing together TRADOS's and SDL's products and
development teams and leveraging the ability of the Enlarged Group to invest in
translation software and services;
o the Acquisition represents the opportunity to provide expanded
functionality and enhanced features for TRADOS's current customer base;
o the Acquisition will give SDL further access to the international
market through TRADOS's distribution network, therefore giving SDL the
opportunity to cross sell its business process outsourcing solution; and
o the Enlarged Group will provide extensive end to end technology and
service solutions for managing information assets on a global enterprise level.
- The Directors believe that the Enlarged Group will have an increased
market presence and the Enlarged Group will be better placed to exploit the GIM
market.
- Following the Completion of the acquisition, Joseph S Campbell,
President and CEO of TRADOS Inc will be joining the board of SDL as a
Non-Executive Director.
- The Directors of SDL unanimously recommend the acquisition to the SDL
Shareholders
- The Board of SDL expects that the Acquisition will be earnings
enhancing in 2006
Mark Lancaster, Chief Executive Officer of SDL plc, said:
"The Board believes that the acquisition will increase SDL's long-term growth
and profitability, offer an attractive product offering and give SDL the
critical mass to compete more effectively in the Global Information Management
market. SDL has significant resources and infrastructure to implement its
vision of the expansion of the GIM market. TRADOS has a considerable installed
base of technology solutions and both companies have leading technology. The
success of both TRADOS and SDL in selling technology through an understanding of
where it fits and how to sell it gives me great confidence in our future as a
combined entity."
Joseph Campbell, President and Chief Executive Officer of TRADOS Inc, commented,
"This is a wonderful opportunity for the Enlarged Group to take full advantage
of the growth opportunities in software, services and solutions for the global
information management market."
All dollar amounts have been converted into sterling at the rate of $1.82 to the
pound, the exchange rate on 17th June 2005, being the latest practically
available data prior to the issue of this announcement.
For further information, contact:
SDL plc Tel: 01628 410 127
Mark Lancaster, Chief Executive
Financial Dynamics Tel: 020 7831 3113
Edward Bridges/Juliet Clarke
PROPOSED ACQUISITION OF TRADOS (Detailed background)
The Board of SDL announced today proposals to acquire for a maximum aggregate
consideration of $60.0 million (#33.0 million), to be satisfied by a cash
consideration of up to $50 million (#27.5 million), which includes $7.8 million
(#4.3 million) in relation to the TRADOS Management Incentive Plan, and the
issue of Ordinary Shares in SDL with a value of up to $10.0 million (#5.5
million) (i) by way of a merger through its subsidiary, TRADOS Acquisition Corp,
all of the outstanding issued shares of TRADOS, and (ii), by way of an asset
transfer agreement, translation management and translation memory software
intellectual property assets of TRADOS. The cash consideration is to be funded
from new bank facilities of #20 million and the balance from the existing cash
resources of the Company.
In view of the size of the Acquisition in relation to SDL, the Acquisition is
conditional, inter alia, upon the approval of SDL Shareholders. An Extraordinary
General Meeting will be convened to seek such approval in due course.
A document providing Shareholders with information relating to the Acquisition,
to explain the rationale for the Acquisition and why the directors of SDL
consider the Acquisition to be in the best interests of SDL and the Shareholders
as a whole will be sent to Shareholders in due course. The document will also
include a Notice of the Extraordinary General Meeting at which the resolution to
approve the Acquisition will be proposed.
The Directors have irrevocably undertaken to vote in favour of the Resolution in
respect of their entire aggregate shareholdings in SDL amounting to
approximately 6.5 per cent of SDL's current issued share capital.
Information on TRADOS
TRADOS Incorporated, a Delaware corporation, provides translation software which
enables global businesses to operate more efficiently in foreign markets by
automating key processes associated with the authoring, localisation and
publishing of enterprise information. TRADOS employs over 140 staff in 5 offices
across Asia, Europe and North America. The company was founded in 1984 in
Stuttgart, Germany, and moved its headquarters to the United States in 1997.
TRADOS products are used in over 3,500 businesses, and it enjoys a global market
share of translation memory solutions of greater than 50 per cent. TRADOS
products and services are tailored to meet the application and infrastructure
software needs of three distinct market segments: (i) global enterprises; (ii)
LSPs (which provide outsourced translation services to global enterprises); and
(iii) freelance translator professionals.
Global Enterprise Market
Enterprise customers use TRADOS software solutions primarily to localise their
products and services, such as sales and marketing materials, websites, customer
support materials and partner support materials. In addition, an increasing
amount of TRADOS's revenue has been derived from the provision of Globalization
Information Management (GIM) systems which ensure the optimal use of the
authoring, localisation, and publishing of enterprise content wherever it is
created, stored or used.
TRADOS solutions targeting the GIM market include TRADOS Global Enterprise
SuiteTM, TRADOS Departmental SuiteTM and TRADOS Term Management SuiteTM. The
client server architecture allows the product to be deployed and shared globally
across the customer's business. The capabilities of each suite are tailored to
match the customer needs and buying preferences of enterprise-wide
implementations, departmental implementations and partner-driven implementations
respectively.
TRADOS also provides consulting, professional services and technical support
services to help its customers plan, develop and implement globalization
information solutions. Enterprise customers include clients such as HP, Intel,
John Deere, SAP, Siemens, Veritas and Volkswagen.
Desktop Translator Applications Market
The market for desktop translator applications is a combination of businesses,
LSPs and freelance localisation professional users whose needs are limited to an
individual desktop. Desktop products are designed to enable users to work
without the need of a server or network. The Desktop Translator Application
improves translators' efficiency by allowing the re-use of text segments
previously translated and stored in translation and terminology memory
databases.
Summary financial information on TRADOS for the three years ended 31 December
2004
The table below summarises the results of TRADOS for the three years ended 31
December 2004 and the net assets of TRADOS at each of those dates.
Year ended 31 December
2002 2003 2004
$'000 $'000 $'000
Turnover 19,656 24,440 25,847
Gross Profit 15,408 18,310 19,064
Loss On Ordinary Activities Before Taxation (5,531) (4,903) (7,623)
Net Assets At 31 December 11,036 9,151 1,377
The above figures have been extracted without material adjustment from the
accountants report on TRADOS set out in the circular to be sent to Shareholders.
In order to make a proper assessment of the financial position of TRADOS, you
should not rely solely on the summary financial information set out above but
should read the whole of the circular being sent to Shareholders.
Historically, TRADOS focused on the desktop translator applications market with
the company being driven from a technology perspective with an emphasis on
software product development. Sales levels in this market proved to be
insufficient to cover the company's significant investment in software and the
sales and marketing costs being incurred. In 2002 TRADOS acquired Uniscape, Inc.
in order to acquire enterprise translation technology, with the goal of moving
into the enterprise translation solutions market and assisting large enterprises
manage their multilingual content.
TRADOS continued to invest heavily in the Uniscape software platform, a platform
developed on J2EE (Unix) development platform, and the desktop translation
memory, which had been developed on the Windows platform. TRADOS planned to
integrate the desktop technology into the Enterprise Translation Management
System thereby combining both technologies and thus enabling it to leverage more
effectively its existing desktop customer base into the enterprise market.
However, following a sustained period of software development and a relatively
low marketing and sales spend TRADOS remained cash flow negative and delivered
limited revenue growth. TRADOS has since June 2004 rationalised its software
development plans and refocused its business on creating a balanced investment
between software development, professional services and, importantly, sales to
the enterprise market.
This resulted in a major restructuring program, and one-off costs of $3 million
being incurred during the financial year ended 31 December 2004. The new
business model has since led to a consistent and significant improvement of
margins in both the enterprise and desktop sectors of the business. Whilst the
benefits of the restructuring only took effect in the fourth quarter of 2004,
the benefits have continued into 2005.
Background to and reasons for the Acquisition
Since its flotation in 1999, SDL has established itself as one of the leading
providers of translation software services and solutions. It has achieved this
through both organic and acquisitive growth, creating global infrastructure and
technology solutions such as SDL's Knowledge-based Translation System.
The global economic boom of the 1990s resulted in massive expansion of global
market operations within large enterprises. This led to rapid growth, but that
growth brought an ad hoc deployment of disjointed and incompatible information
systems and related business processes. Now, in a time when cost reduction and
performance improvement are major priorities, global enterprises are faced with
the challenge of optimising global operations.
The rapid convergence of data to digital format and central storage coupled with
the overlap of the various data sources within companies is currently being
acknowledged as both a major cost issue and an opportunity for the business to
significantly grow market share through effective management of digital content.
Management of single language content is a complex systems problem, however this
is magnified many times for translation and management of multiple languages.
Global Information Management is therefore considered to be a key emerging
industry need.
TRADOS will bring to the Enlarged Group a suite of translation software
products. TRADOS products are used in over 3,500 businesses worldwide. The Board
believes that combining the technology, research and development resources,
customer relationships and sales and marketing capabilities of the two companies
will create a stronger and more competitive offering in the GIM market, with the
breadth and scale that the market demands. The Board believes that the
acquisition of TRADOS will increase SDL's long-term growth, will offer an
attractive product offering and will mean that SDL will have the critical mass
in the GIM market to compete more effectively.
The Board believes the Acquisition to be in the best interests of Shareholders
for the following reasons:
- TRADOS is a leading provider of translation software products. It has a
wide customer base, proprietary technology and is well regarded in the
translation industry;
- the Acquisition represents the opportunity to strengthen SDL's position in
the translation software sector through the integration of SDL's technology and
TRADOS's product, market and technical knowledge;
- the Acquisition represents the opportunity to accelerate the
development of the next generation of translation software based on open
industry standards by bringing together TRADOS's and SDL's products and
development teams and leveraging the ability of the Enlarged Group to invest in
translation software and services;
- the Acquisition represents the opportunity to provide expanded
functionality and enhanced features for TRADOS's current customer base;
- the Acquisition will give SDL further access to the international
market through TRADOS's distribution network, therefore giving SDL the
opportunity to cross sell its business process outsourcing solution; and
- the Enlarged Group will provide extensive end to end technology and
service solutions for managing information assets on a global enterprise level.
The Directors believe that the Enlarged Group will have an increased market
presence and the Enlarged Group will be better placed to exploit the GIM market.
Potential risks of the Acquisition
Potential risks of the Acquisition include the following:
- the risk that SDL might not be successful in integrating TRADOS's
business with its own (including any management and employee disruption
associated with the Acquisition), or that the potential benefits of the
Acquisition, as outlined above, might not be realised;
- the fact that substantial expenses will be incurred in connection with
the Acquisition, including costs of integrating the businesses and transaction
expenses arising from the Acquisition.
- the risk TRADOS's revenues may not meet the levels that the Company is
anticipating in costing the Acquisition; and
- Given the size of the Acquisition, the Company is not required to make
any notification to any relevant competition authorities. Whilst there can be no
assurance, the Board believes this transaction complies with applicable
competition law.
Terms of the Acquisition
SDL has conditionally agreed to purchase for a maximum consideration of $60
million (#33.0 million), to be satisfied by a cash consideration of up to $50
million (#27.5 million), which includes $7.8 million (#4.3 million) in relation
to the TRADOS Management Incentive Plan, and the issue of Ordinary Shares in SDL
with a value of up to $10.0 million (#5.5 million) (i) by way of a merger
through its subsidiary, TRADOS Acquisition Corp, all of the outstanding issued
shares of TRADOS, and (ii), by way of an asset transfer agreement, translation
management and translation memory software intellectual property assets of
TRADOS. The cash consideration is to be funded from new bank facilities of #20
million and the balance from the existing cash resources of the Company.
The $10.0 million worth of Ordinary Shares will, when issued, rank pari passu in
all respects with the existing Ordinary Shares including the right to receive
all dividends thereafter declared, made or paid on the issued share capital of
the Company. Application has been made for 4,539,417 Ordinary Shares (being the
total number of Ordinary Shares to be issued at Completion) to be admitted to
the Official List.
Certain stockholders of TRADOS have entered into lockin agreements pursuant to
which they have agreed not to sell 30 per cent of the Ordinary Shares issues to
them prior to the four month anniversary of Completion and a further 40 per cent
of the Ordinary Shares issues to them prior to the one year anniversary of
Completion.
The Acquisition is conditional, inter alia, on the approval of Shareholders
which is to be sought at the EGM.
Further details of the Merger Agreement and the asset transfer agreement will be
set out in the circular to be sent to Shareholders in due course,
Management and organisation of the Enlarged Group
The management and organisation of the Enlarged Group will be made up of a
combination of the key employees of both companies. To a large extent the skills
of both companies are complementary.
It is not anticipated that additional senior staff will be required to manage
and operate the Enlarged Group. An important addition to the Enlarged Group will
be the formal creation of SDL Global Business services, a consulting division
created solely to help and advise companies on the best way to manage the
multilingual assets in their businesses.
The Directors believe that for the Enlarged Group:
- the proportion of headquarter costs compared to revenue will be lower
than they would have been for the Group and the TRADOS Group individually;
- research and development spend as a proportion of revenue will be
approximately 6-7 per cent.;
- sales and marketing expenditure will stay at the same levels as the
previous financial year for both companies.
Following Completion of the Acquisition, Joseph Campbell, currently President
and CEO of TRADOS Inc, will be joining the board of SDL as a Non-Executive
Director. Mr Campbell has had over 20 years' experience in the enterprise
technology industry and has held key positions at a number of companies
including iManage (now part of Interwoven), Alventive, Continuus Software, and
Banyan Systems (now ePresence).
Current Trading and Prospects of SDL
SDL announced on 22 February 2005 that revenue for the year ended 31 December
2004 was #62.7 million, a decrease of 3 per cent. on the same period in 2003
with profit before taxation and goodwill amortisation up 29 per cent. at #5.3
million. The pricing pressure noted in prior periods remains though at a
reducing rate and the US$ has remained at the levels of late 2004. SDL has
continued to win new contracts and current sales remain encouraging with repeat
business levels maintained. Overall trading to date in the current financial
year ending 31 December 2005 continues in line with management's expectations.
The costs of the Acquisition and integration of TRADOS will be reflected in
SDL's results for 31 December 2005. These results will also to some degree
reflect the current cost structure of TRADOS pending its integration and the
cost of the Acquisition. After an initial phase of operational restructuring,
the Board is confident that it will be able to derive benefits from TRADOS which
will be released over the coming years. The Board of SDL expect that the
Acquisition will be earnings enhancing in 2006.
DEFINITIONS
"Acquisition" the proposed acquisition of TRADOS by TRADOS Acquisition Corp, a wholly owned
subsidiary of SDL pursuant to the Merger Agreement and the acquisition of
certain intellectual property of TRADOS pursuant to the asset transfer
agreement
"Directors" the directors of SDL
"Completion" completion pursuant to the Merger Agreement
"EGM" or "Extraordinary the Extraordinary General Meeting of the Company to be convened in due course
General Meeting"
"SDL" or "the Company" SDL plc
"Enlarged Group" SDL and its subsidiary undertakings following Completion
"issued share capital" or " Ordinary Shares in issue
issued shares"
"Merger Agreement" the conditional agreement between (1) SDL, (2) TRADOS, (3) certain of the
existing stockholders of TRADOS and (4) the Stockholders' Representative,
dated 19 June 2005 in respect of the acquisition of the entire issued and to
be issued shares of capital stock of TRADOS
"Official List" the official list of UK listed securities maintained by the UKLA
pursuant to the Financial Services and Markets Act 2000
"Ordinary Shares" ordinary shares of 1p each in the capital of the Company
"Shareholders" holders of Ordinary Shares
"Stockholders" the holders of shares of TRADOS's capital stock, holders of warrants, holders
of options under TRADOS's 2000 Stock Option Plan and persons holding
securities exerciseable for or convertible into shares of capital stock of
TRADOS
"TRADOS" TRADOS Incorporated, a Delaware corporation
"TRADOS Group" TRADOS, and its subsidiaries
"UKLA" the UK Listing Authority, part of the Financial Services Authority, acting in
its capacity as the competent authority for the purposes of Part VI of the
Financial Services and Markets Act 2000
This information is provided by RNS
The company news service from the London Stock Exchange
END
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