Citrix Systems said Wednesday it will buy Sequoia Software in an all-cash transaction valued at $184.6 million, or $5.64 per share. It also confirmed previous financial projections, but said the deal will trim 2001 earnings.
Citrix Systems (Nasdaq: CTXS), a provider of application server software, was off $1.75 to $18.06 in early trading. Sequoia Software (Nasdaq: SQSW), a maker of extensible markup language (XML)-based software, was up 53 cents to $5.53.
Under the terms of the deal, Citrix will start a tender offer the week of March 26 to acquire all the outstanding shares of Sequoia. Pending customary conditions and approvals, the merger is expected to be completed during the second quarter.
On a conference call with analysts, Citrix said it will receive four main things from the deal--more products and technology for the Web and Microsoft's .Net platform, a strengthened global partner base, more synergy with Microsoft (Nasdaq: MSFT), and strategically, the ability to migrate customers to Web-enabled platforms. XML is viewed as the glue used to combine disparate platforms.
Sequoia's main software product, the XML Portal Server lets companies organize information from disparate sources, publish it online, and index it so users can find specific information. Citrix Systems' MetaFrame application server software lets non-Windows-based users--such as those on a Macintosh, UNIX, or Linux platform--run Windows-based applications remotely on computers or handheld devices and information appliances. Sequoia and Citrix already had an existing partnership.
"Our core strategy has been to provide infrastructure software to allow people to easily connect to any application from anywhere, regardless of the device or network connection," said President Mark Templeton in a press release. Until now, customers had to use Citrix's software to deploy Windows applications, but once the company integrates Sequoia's XML technology, customers will be able to offer access to any information source, business process or application, whether it's a Web, Windows or UNIX application.
On a conference call with analysts, CFO John P. Cunningham said the deal will shave 5 cents a share to 7 cents a share from 2001 earnings. First Call had been expecting earnings of 76 cents a share for fiscal and calendar 2001.
After the close of this year, the deal is expected to add to earnings.
On the conference call, analysts were troubled with the earnings hit. One analyst questioned the synergies of the deal and Sequoia's sales growth. After the integration plans are finalized, the company will be able to provide more details, Citrix said.
In mid-February, Sequoia reported a fourth-quarter loss of 11 cents a share. Depending on how integration proceeds, it may or may not report its next quarter on a stand-alone basis, Citrix said. First Call is predicting Sequoia to lose 15 cents a share in its upcoming first quarter.
Citrix also reaffirmed the projections it provided in January. At that time, the company said it could achieve 2001 sales growth in the low-20s percent range and profit growth in the high-20s percent range on a per-share basis.
Citrix reported earnings of 16 cents per share in its fourth quarter, topping analysts estimates by a penny. Operating income was $31.7 million, excluding special charges. For the full 2000, Citrix earned $94.5 million, or 47 cents per share, on revenue of $470.4 million.