Conquer and divide

The world`s largest software deal, that of Computer Associates' $3.5 billion acquisition of Platinum Technology, as well as the acquisition by Yahoo! of Broadcast.com for nearly $6 billion, had international IT pundits abuzz last week. At home the big news was the Siltek/Datatec deal and the acquisition of Chernikeeff Networks (UK) by Dimension Data.

In order to justify the premium price paid for Platinum Technology, there will be some severe bloodletting.

The official statements made at the time of the acquisition of Platinum Technology by Computer Associates suggest there is minimal overlap with their respective product ranges, except in the area of systems management. It also suggests there would be a concerted effort to move as many employees over to the newly merged company as possible.

My personal view is that this area of overlap is a major concern for users both in SA and internationally, as it is an extremely important and heavy area of activity. In addition, in order to justify the premium price paid for Platinum Technology, I believe there will be some severe bloodletting as this supports the previous track record of both companies.

The acquisition by Yahoo! of Broadcast.com firmly establishes the former as the number one media Internet company for searching (46%), well ahead of number two Excite (22%) and AltaVista (10%). The consolidation of the various "portal" players is not yet finished, and Microsoft`s hand in this market is still to be played.

The acquisition of two of Datatec`s three primary divisions, Workgroup and Crew, by Siltek, considerably enhances Siltek`s distribution capability and is in line with the strategic directions it outlined a few weeks ago. This deal also gives Datatec a minority interest in Siltek (20%), although it will have no management control, and leaves it firmly niched in the networking field.

The Dimension Data acquisition of 49.9% of Chernikeeff Networks, the UK`s largest privately-owned network integration company, for a rumoured R1 billion, may well pave the way for a UK listing by Dimension Data. Chernikeeff Networks had a turnover last year in excess of $56.3 million, employs 170 staff, and enjoys a client base of 1 200 users, many of whom are in the top FTSE 100 companies list. It is an approved supplier for Ascend, Cisco, CompactData, Fore and Xyplex.

We saw the announcement of excellent interim results by Aplitec and disappointing full-year numbers from Aries Investment Holdings (although its IT interests looked good). Other local news included the announcement that Telemetrix will terminate its secondary listing on the JSE as from 30 April 1999.

[Local]

Local Cautionary Notices (see attachment)

We saw the announcement by Microsoft of its new internal re-structuring. This re-organisation splits Microsoft into five (not four as originally thought) divisions/units, each of which not only has a user/consumer responsibility, but a competitive one as well. These divisions are:

• the Business and Enterprise Division, which will also focus on Sun`s Solaris, Novell`s NetWare and Linux;
• the Developer Division, which will also focus on Oracle and backers of "Enterprise Java Beans" such as IBM and Sun;
• the Business Productivity Group, which will also focus on Lotus Notes and 3Com`s Palm Computing;
• the Consumer and Commerce Group, which will also focus on AOL, Yahoo! and IBM`s e-business effort; and
• the Consumer Windows Group, which will also focus on AOL and other proponents of "information appliances".

International acquisitions, mergers, joint ventures etc (see attachment).

Other international news included:

• the appointment of Douglas Bergeron, ex group CEO of SunGard Brokerage Systems Group, as the new president and CEO of Geac Computers;
• the resignation of Delbert W Yocam, president and CEO of Inprise (was Borland Software). (I wonder if the company is looking for a buyer?);
• the announcement by CSH that it would retrench 600 employees following its latest financial showing;
• the announcement by Hitachi that it would cut 6 500 workers;
• news that PeopleSoft, with shares hitting a three-year low, would also be shedding staff;
• the announcement by Mitsubishi, which has already predicted a loss for the year ending 31 March 1999, that it would cut 14 500 jobs by the year 2002; and
• rumours that Tektronix, as per HP, might be splitting the company up between its instrumentation division, and its printers and storage units.

We saw excellent figures from 4Front Technologies, Mensch and Machine Software AG and Sylis SA.

Losses came from Aegis Comms, AFA Systems, Articon Information Systems AG, BrightStar Information Technology Group, Compagnie des Signaux SA, Cyberian Outpost, Delphi Information Systems, Docucon, Electronic Retailing Systems, Heartland Technology, IBS Interactive, Illinois Superconductor, Inso, Intelect Comms, Intellicell, JBA, Micro General, Nestor, NTL, Optelecom, OptiSystems, Osage Systems Group, PLD Telekom, Rocky Mountain Internet, Scangraphics, Star Technologies, Tyler, US Digital Comms, Vanguard Cellular, VI Group, VSI Enterprises, Wave Systems and Zergo Holdings.

Good numbers were recorded by ASA International (back in the black), Computer Concepts (back in the black), GTech Holdings (back in the black), Heyde AG, Mannesmann, Olympus Comms, SofTech and Tech Data (better than expected).

Mediocre returns came from CSP and Pilat Technologies International; while very poor results came from Telebyte Technology.

Other financial news included profit warnings from Applied Microsystems, Comdisco (charge for exiting mainframe leasing business), Documentum, Eastman Kodak, Etec Systems (loss expected), HMT Technology, Ilog SA, Infinium, Iona Technologies, Komag, Network equipment Technologies (loss expected), PeopleSoft, Peritus Software (loss expected), Printware, Ross Systems, Secure Computing and Silicon Graphics.

There were shares splits from AboveNet Comms and VeriSign; adjustment year-end and Q4 figures for 1998 from Alydaar Software (downwards); and ObjectShare looks like being de-listed from the Nasdaq market, as its stock continues to trade below $1.

Locally

Abraxas (+21.7%)
Aplitec (+19.5%)
Datacentrix (+28.8%)
Fintech (+22.7%)
MB Technologies (+19.1%)
Selective Financial Group (+21.7%; includes Pinnacle)
Unihold (+26.5%)

Internationally

Cambridge Technology Partners (+37.1%)
Digital River (+26.9%)
Iona (-55.7%)
Iridium (-28.3%)
Lernout & Haupsie (+21.9%)
New Era of Networks (+24.5%)
Platinum Technology (+160%)
Qualcomm (+22.8%)
Software AG (-22.4%)
Staffware (+27.3%)
Tech Data (+34.4%)
Telxon (-22.9%)

With the first three months of trading this year completed, and a large number of financial warnings having been issued, the quarterly results which will start to flow shortly may make very unpleasant reading for many investors. At home, April will witness yet more IT shares being listed and, I suspect, some more local consolidations.