Sale of USP Business to Oracle

 

TIDMESG 
 
RNS Number : 5515M 
eServGlobal Limited 
26 May 2010 
 

Proposed Sale of USP Business 
Paris, 26 May 2010 
eServGlobal Limited (ASX: ESV; LSE: ESG), a provider of smarter transaction 
management solutions, is pleased to announce the conditional sale of its USP 
Business and USP Products to Oracle for up to US$93.75 million (GBP65 million, 
AUD$113.4 million).[i] 
eServGlobal Limited ("eServGlobal" or the "Company") has entered into a 
conditional agreement to sell the assets and undertakings of its USP Business, 
including the USP Products, to Oracle (the "Agreement"). 
The USP Business operates by providing software solutions to telecommunications 
customers through the licence and support of the USP Products.  The USP Products 
proposed to be sold to Oracle include the USP Platform, ChargingMax, MessageMax, 
NumberMax, uVOMS, UMS and Social Relationship Manager.  The revenue attributable 
to the USP Business in the financial year ending 30 June 2009 was AUD$61.6 
million (GBP35.6 million) (42% of the total revenue for eServGlobal in that 
year).  Profits attributable to the USP Products and other associated assets 
cannot be calculated, as they are not currently accounted for separately from 
the non-USP Products and assets and is further due to the fact that the cost 
accounting and reporting undertaken by the Company is by expense category and 
not product category. 
Following completion of the proposed transaction, the Company will focus on 
continuing and enhancing the growth of its non-USP Business utilising the 
non-USP products (as described below). The non-USP business comprised 58% of the 
Company's total revenue in the financial year ending 30 June 2009 and has 
exciting prospects. 
Purchase Price 
The purchase price is US$93.75M (AUD$113.4 million, GBP65 million) which 
compares to a total market capitalisation of eServGlobal on 24 May of AUD$88.6 
million (GBP51.2 million). 
Approximately 22% of the purchase price (US$20.75 million) (AUD$25.1 million, 
GBP14.4 million) will be held in escrow for a period of two years, with 50% of 
the escrow amount to be released after the first year and the remainder to be 
released after the second year (assuming funds are available and that there are 
no claims). 
The escrow amount is in place in consideration of the warranties and indemnities 
provided by eServGlobal to Oracle.  Release of the escrow amount is not in any 
way conditional on the performance of the USP Business once it is acquired by 
Oracle. 
Transaction Rationale 
Having built, implemented and developed a world leading pre-paid charging 
platform, the Company recognises that Telecom Operators ("TOs") are 
progressively looking for suppliers to provide 'convergent billing' solutions; 
meaning both pre-paid and post-paid billing in a single offer.  Without a 
post-paid solution, eServGlobal could not independently provide convergent 
billing.  To that end, the Company is dependent upon post-paid billing partners 
when providing solutions to tier one telecommunications operators.  As these 
partners introduce their own pre-paid platforms, the value of the USP platform 
to the Company reduces. 
The Board and management consider the purchase price to incorporate a sufficient 
premium to reflect the strategic value of our USP assets and business. 
Furthermore, the Directors of the Company believe that the business of the 
Company will benefit from the separation of the USP Business from the Non-USP 
Business.  Following completion of the Proposed Transaction, the focus of the 
Company will be on the development, support and customisation of the high growth 
areas of mobile money services and value add services. 
The New eServGlobal 
The Board is excited by the prospects of its remaining business which comprises 
of over 60+ customers in 40+ countries. The remaining business will comprise: 
The HomeSend Platform 
·     HomeSend: Global hubbing service offering cross border person-to-person 
transfers of money, air time and roaming recharge 
The Value Added Services (VAS) Platform 
·    PromoMax: Carrier grade solution for TOs to build targeted, personalised, 
diversified and timely promotions and loyalty programs 
·     Value Added Services: Carrier grade messaging and value added services 
platform 
·     MSP: Carrier grade, open standard messaging services platform 
·     Mailis: Flexible, modular and scalable solution enabling service providers 
to deliver voice mail, unified mail and video mail to both retail and business 
customers 
·     UIP: eServGlobal's highly scalable and multi-lingual interactive voice 
response solution 
This product suite will allow eServGlobal to pursue opportunities to provide 
global telecommunication carriers with full "end-to-end" and "any account to any 
account" mobile financial services and international money transfers. 
Additionally, by providing "value added services" to operators that enable them 
to engage with their customers in a personalised and dynamic manner positions 
eServGlobal as a natural partner for the next phase of their customer offering. 
Shareholder Approval 
The conditions precedent to completion of the sale are numerous and include 
approval by eServGlobal shareholders.  A meeting of shareholders will be 
convened on 30 June 2010 at Blackwattle Room 1, Crowne Plaza Darling Harbour, 
150 Day Street, Sydney, New South Wales, Australia  2000.   A notice of meeting 
and explanatory memorandum setting out further details in respect of the 
proposed transaction will be dispatched to shareholders in the coming days.  The 
relevant documents will also be available on the Company's website 
www.eservglobal.com. 
The Company's major shareholder, Guinness Peat Group (holding approximately 19% 
of the issued share capital of eServGlobal) has agreed to vote its shares in 
favour of the transaction.  In addition, MHB Holdings Pty Ltd, Wallaby Hill Pty 
Ltd and Craig Halliday (who hold approximately 20% of the Company's issued share 
capital in aggregate) are supportive of the transaction and have confirmed in 
writing to the Company that in the absence of a superior proposal from a third 
party, they intend to vote their shares in favour of the resolution.  The 
Company has agreed to pay Oracle a break fee of US$937,500 (AUD$1.1 million, 
GBP650,000) in the event that shareholder approval for the sale is not obtained. 
 
Guidance Update 
Given the Board's proposal to sell the USP Business and assets to Oracle, we are 
issuing updated guidance to the market as follows. 
Given the timing of this transaction, key USP customers will likely defer 
traditional end of financial year orders to coincide with the transition of the 
USP Business and assets to Oracle.  Given the month of June is historically the 
largest month in the financial year for license sales, the impact of the 
transaction on FY2010 revenue and earnings on the eServGlobal business going 
forward is expected to be material.  The Company's revenue and earnings are 
highly seasonal with a disproportionately large amount of the Company's revenue 
earned in the last few months (particularly June) of the financial year. 
The Board believes the purchase price reflects an adequate premium to reflect 
the intrinsic valuation of the USP Business and assets which takes into account 
any benefit that Oracle might receive from the deferment of orders into the 
period following completion of the proposed transaction. 
As the proposed transaction is by way of an asset sale, the Company accounts 
will reflect the profit on sale of the USP Business and assets.  The profit 
(based on current exchange rates and after potential purchase price adjustments 
and transaction fees) arising from the transaction is in excess of AUD$103 
million (GBP60.7 million). 
The Australian dollar has strengthened considerably against the Euro during the 
year, which has additionally impacted revenues, and over the full year has had a 
negative impact of approximately AUD$12 - 14 million (GBP6.9 - 8.1 million) 
based on our budgeted rate of$ 0.542 AUD per Euro. 
As a result of the above factors the Board now believes that FY2010 revenue will 
be in the range of AUD$77 million to AUD$82 million (GBP43.4 - 46.2 million) 
(FY2009: AUD$147.2 million GBP85.1 million) and overall FY2010 EBITDA (before 
non recurring restructuring and foreign exchange losses) will be in the range of 
AUD$92 million to AUD$97 million (GBP52 - 54 million) (FY2009: AUD$2.4 million) 
(GBP1.4 million) having regard to both FY2010 operating activities and the sale 
of the USP Business and assets. 
As a consequence of the transaction, FY2011 will be a year of transition in 
which eServGlobal's management and organisational structure will be focused on 
growing the remaining non-USP businesses.  Both the HomeSend platform and the 
Value-Added Services platform represent exciting growth opportunities, albeit 
they are at varying stages of development and revenue generating potential. 
Management expects to grow both revenue and earnings progressively over the 
medium to long term.  While FY2011 will be a year of transition, the Board 
believes it can achieve revenue in the range of AUD$38 million to AUD$45 million 
(GBP22 - 26 million) and generate positive EBITDA (before non-recurring 
restructuring charges) of up to AUD$5 million (GBP2.9 million). 
Capital Management Review 
Following completion of the transaction, the Board will conduct a capital 
management review, wherein it will consider the extent to which the cash 
proceeds in relation to the transaction are excess to the Company's requirements 
going forward, having regard to: 
·          The business plan associated with the remaining non-USP business over 
the medium term, including capital investment, restructuring and working capital 
requirements associated with a more focussed and slimmed-down business; 
·          The desirability of paying down the Company's existing credit 
facilities; 
·          The amount of tax payable by the Company in connection with the 
transaction; and 
·          The Company's current and possible future obligations to Oracle with 
respect to the Agreement, noting that a portion of the sale proceeds will remain 
in escrow for two years post completion. 
If and to the extent the Board considers that a portion of the sale proceeds is 
excess to the Company's requirements, it will also investigate the most 
efficient form of distribution of that excess to shareholders, which may in turn 
require shareholder approval.  No determination in this regard has been made by 
the Board at this time.  The Board expects to update shareholders in relation to 
its capital management review during the second half of 2010. 
About eServGlobal 
eServGlobal is listed on the Australian Securities Exchange (ASX:ESV) and the 
London Stock Exchange AIM Market (LSE:ESG). 
More information is available in our investor presentation which is accessible 
via our website wwww.eservglobal.com. 
+---------------------------------+---------------------------------+ 
| eServGlobal Limited             |             Tel  [phone] | 
| Richard Mathews                 |            [e-mail] | 
| Chief Executive Officer         |                                 | 
+---------------------------------+---------------------------------+ 
| Altium (AIM)                    |       Tel +44 (0)  207 484 4040 | 
| Nominated Adviser, Mike         |                                 | 
| Fletcher/Paul Lines             |                                 | 
| Corporate Broking, Chloe        |                                 | 
| Ponsonby                        |                                 | 
+---------------------------------+---------------------------------+ 
 
 
[i] Note that all currency amounts have been calculated using the currency 
exchange rates on www.reuters.com on 24 May 2010.  The final purchase price will 
be converted into Australian dollars using the currency exchange rate on 
www.reuters.com on the date that is 9 business days before the closing. 
Further, the final purchase price payable at closing will be adjusted for 
certain movements in working capital between today's date and the closing date. 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
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