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Kodak snaps up Wang imaging

Wang announces the final agreement to sell its software business to Kodak--for $260 million, and sees its stock close up 3/4.

Wang (WANG) today announced the final agreement to sell its software business to Kodak for $260 million, giving investors further good news as Wang reported its earnings today.

Shares of Wang closed at 23-1/4, up 3/4 from a close of 22-1/2 yesterday.

The deal may bolster the stock of two companies in a similar software business, said Patrick Mason, an analyst with Volpe, Welty & Co. "Wang sold their software business for a five [times revenue] multiple. Optika Imaging Systems (OPTK) is trading at $7 today, but based on a five times multiple it should be at $10. And FileNet (FILE) is at $19 a share and should be at $42 based on this valuation technique," Mason said, noting the two companies are also more profitable than Wang.

Under the cash deal, Kodak will operate the new software business as a separate subsidiary in the company's business imaging systems organization.

The deal, expected to close within the third quarter, will enable Kodak to strengthen its position in the booming imaging and work management software market.

And the sale allows Wang, which emerged from bankruptcy in 1992, to focus its resources on its network and desktop integration and services business.

"We believe this transaction will create several winning outcomes," said Joseph Tucci, Wang chairman and chief executive, in a statement.

Wang, once a leading hardware manufacturer, filed for bankruptcy in 1992 when the market for its proprietary minicomputer systems vanished. As the company struggles to return to profitability, it decided to sell its digital imaging unit to Kodak and received a vote of confidence from Microsoft in 1995, when the software giant took a $90 million stake in Wang.

"We see this as an opportunity to reaffirm strong relationships with two great companies," said Bill Gates, Microsoft chairman and chief executive, in a statement. "We look forward to building on our existing alliance and co-branding with Kodak for consumer image software, and?look forward to continuing our long-standing relationship with Wang as a Microsoft Authorized Support Center partner."

Wang today also reported improved second quarter results, as it narrowed its losses.

Wang reported a net loss of $8.7 million, or 87 cents a share for the quarter ending December 31, compared with a loss of $81.4 million, or $2.61 a share, a year earlier. The second quarter was also an improvement over the $24.6 million loss in the previous quarter.

Mason said the company's performance was largely in line with Wall Street's expectations.

Revenues reached $363.7 million for the quarter, up from $292.5 million a year ago.

The company said revenues during the quarter were somewhat affected by the pending deal with Kodak. Customers sat on the fence with any pending imaging software purchases until the acquisition question was resolved, Mason said.