The much-ballyhooed merger between
, a closely held firm in Tel Aviv, supposed to create the biggest software house in Israel, is off,
The marriage of Sapiens and Ness was to have created a software giant with more than 3,000 programmers on the payroll, and revenue exceeding $300 million a year.
"Considerable risks arose during the merger process, not related to the merger itself, that could not be ignored," commented Sapiens CEO Dan Falk. He would not describe the risks that arose, but the cancellation is probably due to the drubbing Sapiens stock has taken on the market since the merger was announced.
The companies announced their merger on Sept. 17, a week after the story had leaked to the press. At the time, Sapiens was traded at $6.50 a share on Nasdaq, bringing the company's market cap to $150 million. The companies agreed that Ness's shareholders would receive two-thirds of the united company's share capital, a deal pricing Ness at $300 million, double that of Sapiens.
Shortly after the deal was struck, Sapiens released an earnings warning. The company said its third-quarter results would not meet forecasts, mainly because of the weak euro. Most of Sapiens' sales are in that currency. Investors lost little time in savaging Sapiens' stock, which plunged to $2.10, bringing the company's market value to $50 million. Consequently, if the deal were done at the proposed ratio, Ness would find itself worth only $100 million.
Both companies recently denied intentions of killing the deal because of the diving valuations. But facing the evaporation of $200 million in value, Ness evidently preferred to back out.
Asked if Sapiens would have been prepared to go on with the merger under the conditions created, Falk said that Ness had been the one to announce its decision to back off. "We did not initiate the merger's cancellation," Falk stated.
Today Sapiens opened the U.S. trading session at a share price of $2.22.
Sapiens' actual third-quarter earnings were in keeping with its warning. Revenue plunged to $17.1 million and it lost a net $7 million. In the comparable quarter of 1999, the company netted $3.9 million.
The merger had advantages for both companies. It would have boosted Ness into the international markets, whereas today 85% of its sales are in Israel. It would also have provided the privately held Ness with a back door onto the Nasdaq.
As for Sapiens, it would have gotten its hands on Ness's manpower, which would have given its internal growth a huge boost.
"We look forward," Falk declared. "We keep our eyes on target, to return Sapiens to profitability next year. We have detailed plans how to do it." He added that Sapiens would shortly be announcing an outsourcing agreement with an Israeli company, worth "several millions of dollars."
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