Amdocs' Acquisition of Architel Looks Iffy

A restructured relationship with ICG Communications means less profits for Architel.
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SAN FRANCISCO -- Billing software company Amdocs' (DOX) - Get Report planned acquisition of Toronto-based Architel (ASYCF) could be in danger after Architel said it would report a revenue shortfall due to a change in its relationships with its largest customer.

Amdocs said in a statement it was notified by Architel that it had restructured its relationship with

ICG Communications

(ICGX)

. "Under the restructuring, ICG will retain its license of Architel's ASAP product but will not license the Objectel and OMS products, and Architel will also cease providing professional services to ICG," Amdocs said. "As a consequence, for the 12 months ending Sept. 30, 1999, Architel said it expects to earn approximately $10 million in revenue from the account rather than the $20 million originally anticipated. In addition, Architel announced that it expects to report lower than expected revenue for the quarter ended March 31."

After the market close on March 2, Amdocs said it would acquire Architel in a $400 million stock swap that valued Architel shares at $24.52, which was a 57% premium from where the shares were trading before the deal was announced. But in light of Architel's news, Amdocs says it is "evaluating its full range of options" and "cannot make any assurances as to the results of the discussion with Architel or the outcome of its internal evaluation of this matter."

David Raezer, analyst at

NationsBanc Montgomery

, estimated that there is a 25% to 50% chance that the deal may not go through now and a zero chance the deal would go through at the current offering price. "ICG was the most strategic customer the company

Architel had and was a major reason

for Amdocs to do the deal in the first place," he said. If the deal does go through, Raezer said it would likely be at a significantly lower price.

Architel was down 10 11/16, or 59%, at 7 5/16 around midsession. Amdocs was up 1/4 at 21 1/4.

--

Medora Lee

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