Websense to Acquire Surfcontrol
Websense today announced that its subsidiary, Websense SC Operations Limited, has made a pre-conditional cash offer to acquire all of the issued and to-be-issued ordinary shares, excluding treasury shares, of SurfControl PLC, a provider of on-demand and software-based Web and email security solutions. Under the terms of the proposal, SurfControl shareholders will receive 700 pence in cash for each SurfControl share. The proposal values SurfControl's existing issued share capital at approximately £201 million (approximately US$400 million).
"The combination of Websense and SurfControl is expected to benefit customers, partners and shareholders by creating an IT security solutions company with the scale and product offering to compete more effectively with large global security software companies. Additionally, by improving operational efficiencies, we believe we can generate operating margins in the combined business similar to the historical levels we have achieved in our own Web security business," said Gene Hodges, CEO, Websense, Inc. "A further objective of the acquisition is to complement and accelerate our stated growth initiatives, particularly in the strategically important SMB segment. We are especially excited about having SurfControl's BlackSpider® on-demand content security solution available to our global customer base."
"After the transaction closes, we are committed to supporting SurfControl's and Websense's customers and channel partners. We believe the combination is a win for the customers and partners of both companies," added Hodges. "We plan to introduce a customer satisfaction and retention program and pledge to support SurfControl's layered software Web security solutions at least through 2010. We also plan to enhance these products with data from the merged research databases of the two companies. We also plan to renew existing SurfControl subscriptions at competitive levels, similar to their historical prices. Channel partners are expected to benefit from the opportunity to offer a broader set of solutions to their customers, backed by the threat research capabilities and financial strength of Websense."
"This proposal offers a significant premium to SurfControl's shareholders which fairly recognizes the value that has been built through the focused strategy of excellence in execution we have pursued," said Patricia Sueltz, CEO of SurfControl, "I believe that SurfControl today provides a unique combination of security solutions for its customers through software, appliances and on-demand services. The proposed acquisition by Websense represents another major step in the development of SurfControl's business, which will become part of a larger organization better positioned to compete in the growing market for Internet security services. On behalf of the board, I would like to thank all of our employees for the dedication they have shown in pursuit of our goals and the value they have created for our shareholders."
Financial Benefits In addition to the improved prospects of the combined company, Websense believes the combination creates the opportunity to deliver significant accretion to earnings and cash flow from operations. The accretion is the result of retaining SurfControl's anticipated future bookings, while reducing expenses through consolidation and restructuring of the combined operations. Estimates of future bookings assume some customer attrition, which is anticipated to be partially offset by sales of SurfControl products to Websense customers and sales of Websense products to SurfControl customers and by new customer bookings resulting from expanded distribution capabilities. The opportunities for additional sales include selling SurfControl on-demand Web and email security and layered email security products to Websense customers and selling Websense Web security and information leak prevention products to SurfControl customers.
The transaction is expected to close approximately four months following regulatory approval by United States (US) and United Kingdom (UK) agencies. Following the close, the combined business is expected to:
- Be slightly dilutive to Websense's non-GAAP earnings per share in the first quarter following the close.
- Be at least 20 percent accretive to non-GAAP earnings in the next 12 months (the second through fifth quarters post-close), with additional accretion thereafter. The estimates of accretion to non-GAAP earnings per share are based on estimates of the future pro forma revenue for the combined company, which exclude the impact of the write-down of an estimated 90 percent of SurfControl's deferred revenue required by US GAAP purchase accounting.
- Generate incremental pro forma cash flow from operations of approximately $15 million in the next twelve months (the second through fifth quarters post-close), increasing to at least $30 million in 2009 and at least $50 million annually by the end of 2010. These estimates of incremental pro forma cash flow from operations exclude non-recurring cash and non-cash restructuring costs and expenses associated with the transaction and take into account the expected cost savings and estimated net impact of customer attrition and new sales opportunities for the products of both companies.
- Achieve cost synergies of approximately $10 million in the first quarter after the transaction closes, and at least $60 million in the next 12 month period (the second through fifth quarters post-close), prior to any of the non-recurring cash and non-cash restructuring costs and expenses associated with the transaction. The non-recurring cash out-of-pocket expenses involved in obtaining the cost synergies are expected to be substantially incurred within 15 months of the close of the transaction.
The transaction is being financed through a combination of Websense's existing cash resources and non-equity new banking facilities provided by Bank of America and Morgan Stanley Senior Funding Inc. Additionally, at close, or shortly thereafter, Websense expects to have debt of approximately $180 million to $200 million and cash and marketable securities totaling approximately $50 million. Websense intends to reduce the balance of debt aggressively through internally generated cash flows.
The transaction, which has been unanimously approved by the boards of both companies, is subject to the conditions and the satisfaction or waiver of the Pre-Conditions which relate to the obtaining of regulatory clearances from the relevant UK and US regulatory authorities, as set out in full in Part A of Appendix 1 to the Rule 2.5 Announcement available on the company's Web site at www.websense.com/acquisition. The proposal will not proceed if the Pre-Conditions and the Conditions (set out in full in Part C of Appendix I to the Rule 2.5 Announcement) have not been satisfied by the close of business on July 26, 2008, or such later date (if any) as SurfControl, Websense and Websense SC Operations Limited may, with the consent of the Panel, agree. Prior to the closing of the transaction, Websense and SurfControl will operate as separate businesses.
Reproduced from an article published by PR Newswire
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