SumTotal To Acquire Pathlore; Combination Creates Industry's Largest Provider with Over 1,500 Customers; Transaction Expected to
August 03 2005 - 4:08PM
Business Wire
SumTotal Systems(TM), Inc. (Nasdaq:SUMTE) and Pathlore(R) Software
Corporation, two leading enterprise software companies in the
learning and business performance management market, today
announced the signing of a definitive merger agreement for SumTotal
to acquire Pathlore for approximately $48 million. At the closing
of the acquisition, Pathlore shareholders will receive
approximately $29 million in cash and 4 million shares of SumTotal
Systems common stock. The merger reinforces SumTotal's position as
the largest software provider in the emerging learning and
performance management market and is expected to provide its
collective customers even greater resources for support and product
innovation. According to industry analysts, the acquisition brings
together the leaders in revenue and customer count. The combination
is expected to offer Pathlore customers access to SumTotal's
broader enterprise suite of product capabilities and expanded
global support as well as extend SumTotal's reach into key
segments, including state government, health care, and the rapidly
growing middle-market. The Pathlore customer base includes over 100
healthcare organizations, as well as government agencies in 38 of
the 50 United States. Key benefits of the acquisition include: --
Increased R&D capacity to bring new innovations to market more
rapidly and economically -- Enhanced global and vertical market
support and delivery capabilities -- Enhanced scale and stability
with over $100 million in expected annualized revenue -- Increased
investment capability with approximately $10 million in expected
annual cash flow -- Expanded footprint with over 1,500 customers
worldwide to drive industry roadmap "After surveying our industry's
landscape, it became evident that Pathlore has a tremendous amount
of momentum in complementary markets," said Andy Eckert, CEO of
SumTotal. "We believe that its growth, significant revenue base,
and profitability profile could help us reach a critical threshold
of revenue scale and profitability for our customers, partners and
investors. With similar philosophies and cultures, complementary
technology and offerings, and an unmatched footprint, we believe
the combined company will be a true enterprise-class player in our
industry with the scale to drive innovation and customer
satisfaction in a profitable manner." "We believe the combination
of these two strong companies will expand the scope of our
operations and ensure that we will have the capabilities and
financial strength to successfully serve our customers around the
globe," said Steve Thomas, president and CEO of Pathlore. "We
believe strongly that this combination allows us to bring our
customers significant value in terms of new capabilities and
products. Given our large worldwide customer footprint, this
combination meaningfully raises the bar for learning and business
performance management providers." "The combined company's number
one priority will continue to be customer care and success," said
Eckert. "We will spend even more time on applications development
and customer support. Both Steve and I believe that our integration
plans and these increased investments will help ensure our
customers' success. We look forward to working with a broad team
that represents the best of what both companies currently offer."
Terms of the Agreement and Financials Under terms of the proposed
transaction, Pathlore shareholders will receive approximately $29
million in cash along with 4 million shares of SumTotal common
stock. The company will also incur additional cash obligations due
to deal-related and severance expenses. The company plans to fund
the cash element of the transaction, in part, by establishing a new
$22.5 million credit facility. The proposed transaction has been
approved by the SumTotal and Pathlore Boards of Directors.
Completion of the acquisition will be subject to Pathlore
stockholder approval, customary closing conditions, and the
issuance of a permit from the Commissioner of Corporations for the
State of California so that the issuance of the company's stock
will be exempt from registration under the Securities Act of 1933.
The proposed transaction is expected to close within 90 days. For
calendar year 2004, SumTotal Systems reported revenue of $55.2
million and Pathlore reported revenue of $23.9 million. For the
first half of calendar year 2005, SumTotal reported revenue of
$32.6 million and Pathlore reported revenues of $14.6 million.
These numbers are all on a GAAP basis. Once the acquisition is
completed and SumTotal has worked through the impact of the write
down of the deferred revenue balance acquired from Pathlore, the
combined company is expected to have revenues in excess of $100
million on an annualized basis. Given expected expense synergies,
SumTotal expects the transaction to yield significant cost savings
and increased cash flow. In 2004, SumTotal generated $0.1 million
of cash from operating activities and Pathlore generated $1.5
million in cash from operating activities. With expense synergies
expected to be approximately $8 million to $10 million on an
annualized basis, the combined company therefore expects to
generate cash flow from operating activities of at least $10
million on an annualized basis. SumTotal will continue to be led by
Andrew Eckert as CEO and Kevin Oakes as president. Steve Thomas,
president and CEO of Pathlore, will join the SumTotal board of
directors and remain actively involved with the combined company.
ThinkEquity Partners LLC acted as financial adviser to SumTotal.
Conference Call & Live Webcast SumTotal Systems will host an
investor conference call and webcast to discuss the financial
results of the second quarter ended June 30, 2005, and this
acquisition. The conference call and webcast will take place on
Wednesday, August 3, 2005, at 2:00 p.m. (Pacific Time)/5:00 p.m.
(Eastern Time). A live audio webcast will be available to investors
and the public from SumTotal's website at
www.sumtotalsystems.com/company/investors. In addition to the
webcast, a telephone replay will be available on Wednesday, August
3, 2005, beginning at approximately 5:00 p.m. (Pacific) through the
close of business on Wednesday, August 10. The replay can be
accessed by dialing the U.S. toll-free number: 1-800-207-7077,
access code: 4153. The international dial-in number is
+1-913-383-5767, access code: 4153. You are cautioned that the time
and/or manner of the webcast may change for technical and or
administrative reasons outside of SumTotal Systems' control. About
SumTotal Systems, Inc. SumTotal Systems Inc. (Nasdaq:SUMTE) is the
largest provider of learning and business performance technologies
and services. SumTotal deploys mission-critical solutions that
align learning with organizational and business goals to generate
significant bottom-line results. With more than 12 million users
worldwide, SumTotal has helped accelerate performance and profit
for nearly 700 of the world's best-known companies and government
agencies, including US Army, Air Force, Navy and Coast Guard,
Microsoft, United Airlines, Vodafone, Aetna, Accenture, Cendant,
Harley-Davidson, Wyeth, Wachovia and D&B. SumTotal has offices
throughout the US, in London, Paris, Heidelberg, Sydney, Tokyo and
Hyderabad, India. For more information about SumTotal's products
and services, visit www.sumtotalsystems.com. About Pathlore
Software Corporation Pathlore Software Corporation provides the
most widely adopted learning management solution in the world.
Millions of users and over 1,000 organizations rely on Pathlore's
learning-management offerings to drive business performance.
Whether your company's success depends on developing and retaining
employees, getting sales channels up to speed quickly on new
products, increasing quality and customer satisfaction, or reducing
the costs associated with regulatory compliance, Pathlore learning
management solutions ensure that you achieve the maximum return on
your investment in people. Pathlore clients include
DaimlerChrysler, Delta Air Lines, Novartis, PNC Bank, U.S. Bancorp,
four of America's top 10 hospitals (as ranked by U.S. News &
World Report in 2004) and government agencies on three continents.
For more information, go to www.pathlore.com Pathlore is a
registered trademark of Pathlore Software Corporation. All other
registered and unregistered trademarks and trade names are the
property of their respective owners. SAFE HARBOR
STATEMENT/FORWARD-LOOKING STATEMENTS This press release contains
forward-looking statements that involve risks and uncertainties.
These forward-looking statements include statements regarding the
expected financial performance of SumTotal Systems following the
consummation of the acquisition, SumTotal's ability to achieve the
expected expense synergies as a result of the acquisition,
including without limitation, projected revenue, profitability and
cash flow, the strengthening of SumTotal's position in the learning
performance and business management market as a result of the
acquisition, and the expected timing for closing the acquisition in
the third quarter of 2005. Such statements are just predictions and
involve risks and uncertainties such that actual results and
performance may differ materially. Factors that might cause such a
difference include the failure to (1) receive approval from
Pathlore shareholders for the acquisition, (2) timely achieve the
projected synergies so that the financial projections will be met,
(3) be issued a permit from the Commissioner of Corporations for
the State of California so that the issuance of SumTotal Systems
common stock in the Merger will be exempt from registration under
the Securities Act of 1933, (4) successfully integrate Pathlore and
its employees into SumTotal and achieve expected synergies, (5)
accurately forecast the acquisition related restructuring costs and
allocation of the purchase price to in process research and
development, goodwill and other intangibles acquisition related
inventory and other asset adjustments, (6) retain legacy Pathlore
customers, (7) compete successfully in this highly competitive and
rapidly changing marketplace, and (8) retain key employees. In
addition, there is no assurance that SumTotal will be able to
consummate a credit facility on favorable terms, or at all. These
and other risks are detailed from time to time in SumTotal's
periodic reports that are filed with the Securities and Exchange
Commission, including SumTotal's annual report on Form 10-K for the
fiscal year ended December 31, 2004 and its quarterly report on
Form 10-Q for the fiscal quarter ended March 31, 2005. SumTotal
Systems assumes no obligation to update the information in this
press release or in the accompanying conference call. Additional
Information And Where To Find It SumTotal Systems, Inc. filed a
Form 8-K on August 3, 2005. Investors and security holders are
urged to read this filing. Investors and security holders may
obtain free copies of this document and other documents filed with
the Securities and Exchange Commission at the Securities and
Exchange Commission's web site at www.sec.gov. In addition,
investors and security holders may obtain free copies of the
documents filed with the Securities and Exchange Commission by
SumTotal by contacting SumTotal Investor Relations at (650)
934-9525.
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