Phone.com dials $6.4 billion deal for wireless software

Shares of both companies soared on the news. Near the close of trading today, Software.com shares were up $35.31, or 33 percent, to $143.06. Phone.com shares jumped $14.22, or 18 percent, to $92.28.

Gartner analyst Bernard Elliot says that with this aggressive merger, Software.com and Phone.com will move into the next phase of their growth. see commentary

The merged company will be led by Donald Listwin, the former No. 2 executive at Cisco Systems. Phone.com chief executive Alain Rossmann will become executive vice president and board chairman of the as-yet-unnamed company, and Software.com chief executive John MacFarlane will serve as executive vice president.

Listwin's plans to leave the communications equipment giant were announced yesterday in conjunction with Cisco's fourth-quarter earnings release. The 10-year Cisco veteran served on the board of Santa Barbara, Calif.-based Software.com, in which Cisco has a minority stake.

Redwood City, Calif.-based Phone.com, which makes software that enables the delivery of Internet data to wireless devices, and Software.com, which makes Web-based messaging tools, said the newly combined company will be a strong provider of application software for the delivery of email, voice mail, unified messaging, mobile instant messaging, and wireless Internet access for Internet Protocol-based networks.

Vik Mehta, a financial analyst with Goldman Sachs, said the merger deal is an overall good match, setting the stage for tough competition in the market equipped with a strong set of products and a stellar management team.

"Both companies, independently, have a terrific track record," said Mehta. "It's rare that you have two companies like that who choose to combine with each other...In addition, they are bringing in new management from Cisco. (Listwin) is one of the most talented individuals in the higher ranks at Cisco. That is a key win for the new company."

While the wireless data market is still in its infancy, the market potential is huge. Most of the major mobile carriers in the United States have started to offer cellular Web services, trailing European carriers. By 2003, industry analysts expect there will be more than 1 billion mobile phones in use around the globe.

Many analysts also project that hundreds of millions of Net-enabled cell phones and handheld devices will be in use in the near future. Coupled with the high-speed wireless networks on the horizon, a whole new market for mobile technologies and wireless e-commerce could be set to explode.

Mehta said while the merger is a perfect match, the biggest challenge the two companies face will be overcoming integration hurdles related to large mergers. It usually takes about six months after the deal closes for the actual results of the merger to surface, he said.

Under terms of the deal, Software.com shareholders will get 1.61 shares of Phone.com stock, or $125.68, for each Software.com share, a 17 percent premium based on yesterday's closing prices, according to Bloomberg News. That brings the value of the company to $6.4 billion, not including options that vest if Software.com changes hands, Bloomberg reported. Shareholders of each company will own approximately 50 percent of the combined entity.

Both companies' boards have approved the merger and said they expect the transaction to close by the end of calendar year 2000.

Additionally, the companies said they hope to benefit from a number of cross-selling opportunities through several existing customers, such as communications service providers AT&T, Sprint PCS, Telefonica, Nextel, Verizon Wireless, British Telekom, Deutsche Telekom, Road Runner, Excite@Home and others.

During the past 12 months, the two high-flying companies had combined revenues of over $146 million.

The transaction is subject to the approval of Phone.com and Software.com shareholders and customary closing conditions. The name of the combined company will be announced at a later time.