Australia MYOB to buy software firm Solution 6

Monday March 29, 3:04 am ET
By Sophie Hares

SYDNEY, March 29 (Reuters) - Australian business software firm MYOB Ltd (Australia:MYO.AX - News) said on Monday it would buy former stock market darling Solution 6 Holdings Ltd (Australia:SOH.AX - News) in a deal worth A$233 million ($173 million).

The all-share deal to buy the loss-making software firm expands MYOB's grip on the small- and medium-business software market and provides some limited cost savings down the track, analysts said.

"I guess (MYOB's) trying to entrench themselves further within the business processes," said Alex Milton, analyst at Macquarie Equities. "You know the price they're paying, but what sort of earnings they'll get out of it, will really take a couple of years to come out."

MYOB, which already holds more than 12 percent of Solution 6, said it will offer 0.55 MYOB share for each Solution 6 share it does not already own after Solution 6 distributes up to 20.7 cents cash per share in surplus cash to shareholders.

The proposed capital return and merger valued Solution 6 at A$233 million using MYOB's three volume weighted average share price of A$1.29, and would give the combined entity a market capitalisation of around A$435 million.

MYOB said the bid implied a premium of 37 percent over Solution 6's three month weighted average share price 67 cents.

The deal would be for Solution 6's accounting and compliance business and training operations. The takeover target said it would sell its Atlanta-based professional and enterprise units to private equity firm Franciso partners for around A$34 million.

"We should be growing our revenue long-term, still up in the double-digit area and we should be growing bottom line at a rate better than that," Craig Winkler, MYOB chief executive, told reporters.

The combined group would notch up revenues of around A$180 million for calendar 2004, up from A$90 million in 2003, and would be profitable, said Winkler, but he refused to give any profit forecast.

Solution 6 shareholders welcomed the deal, sending the stock up 11 percent to 78 cents, while concerned MYOB shareholders pushed stock in that firm down 3.5 percent to A$1.12.

This implies a current bid price of 61.6 cents, before the 20.7 cash redistribution.

However, the stocks are way below the lofty levels touched at the height of the tech-boom, when Solution 6 traded close to A$18 and MYOB near to A$5.50.

REALITY CHECK

The two companies saw their share prices soar at their height of the tech-boom but have since seen their stock tumble and their ambitious plans fail to materialise.

Solution 6, which once slapped a A$100 price target on its stock, has sold non-core units in recent years to focus on its core accountancy and legal software business.

Solution 6 specialises in accounting software, while MYOB software ranges from point of sale software to payrolls and tax software. The group, which was formed over 20 years ago, racked up A$70.2 million in losses for the six months to December 2003, after making a net loss of A$14.13 million for 2003.

MYOB, which has a market capitalisation of around A$284 million, provides business management software and services to small and medium-sized businesses in Australia, New Zealand, the United States, Britain, Malaysia, Singapore and Hong Kong.

Guiness Peat Group Plc (London:GPG.L - News; NZSE:GPG.NZ - News) has given MYOB a call option over the 7.3 percent of Solution 6 shares it holds.

($1=A$1.35)

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