Wednesday, 26 November 2008

Return from Egypt

Many thanks for the e-mails wondering why the blog hasn’t been updated for a couple of weeks – as some of you guessed, I’ve been away – templing and toombing in Egypt.

I’ve come back to the normal pile of e-mail in my inbox, and am working my way through the e-mails as quickly as possible as I’m off up north on a project for the next few days. Somehow I think the weather will be somewhat cooler than the 30C I’ve been used to....

In my absence I note that a number of my predictions have come to fruition – notably the Capita/IBS acquisition being referred to the Competition Commission, and a spirited defence by Gladstone against Constellation’s opportunistic 25p bid. I’ll comment further when I’m back from the frozen north.

Monday, 3 November 2008

OFT vs. Northgate/Anite and Capita/IBS

The OFT has published the full text of its decision not to refer Northgate’s proposed acquisition of Anite’s Public Sector business to the Competition Commission. A summary of the text, and a link to the full text can be found here.

Much as
predicted, the focus of their investigation was on the Revenues & Benefits market, the two other areas (of Local Government Social Housing and Criminal Justice) rightfully only requiring minimal investigation to confirm there were no serious competition concerns.

In the R&B market, the OFT seems to have drawn the conclusion that Anite represented no real competition– noting that the “majority of authorities contacted that have recently tendered their R&B business have told the OFT that they do not consider the Pericles product as a viable alternative”. Going on to conclude “bidding data indicate that Anite does not operate as a key competitor in the market. Having assessed the competitive interaction existing between Northgate and Anite, and taking into account Anite's position in the market going forward, the OFT believes that Anite does not place a significant competitive constraint on Northgate and is unlikely to do so in the future. Accordingly, no realistic prospect of substantial lessening of competition arises as a result of unilateral effect concerns in the R&B market.”

Interestingly the full text does refer to the current Capita/IBS investigation. Reading between the lines of the full text (and with knowledge of some of the figures hidden from public view), although the Northgate/Anite OFT text makes it clear that “the OFT does not prejudge the outcome of its investigation in that case”, if it is to follow the same argument that in the end allowed the Northgate/Anite acquisition to proceed, then it seems highly likely that there will be a “substantial lessening of competition” in the R&B market and therefore the Capita/IBS acquisition will be referred.

The Northgate/Anite OFT text noted that “Civica appears not to be interested in bidding for any offer, after having failed to develop a system to meet customer requirements”. So there really are only two suppliers now – Northgate/Anite and Capita/IBS – and on the basis of new business wins over the past few years it seems clear that IBS did indeed place ”significant competitive constraint” on Capita.

It seems likely that the Capita/IBS deal will wind up on the Competition Commission’s desk after all.........

The battle for Gladstone hots up

Canadian firm Constellation has posted its offer document for the 71% of shares that it currently doesn’t own. Not surprisingly, Constellation has heated up the likely war of words over the next few weeks quoting the following benefits of their bid to Gladstone’s shareholders:

· Provides a cash alternative for shareholders compared to an uncertain future under the current Gladstone Board
· Provides the Gladstone business and employees with an attractive future as part of the Constellation group, which is focused on developing vertical market software businesses
· Constellation believes that Gladstone's existing management are not developing the business to its full potential

Leisure systems provider Gladstone has again rejected the unsolicited approach worth £13.54m from Canadian firm Constellation Software (see
here for RNS). Stressing that the Board “UNANIMOUSLY rejects the Offer” (their capitals) it states that:

· It believes the Offer undervalues the Company and its future growth potential.
· The timing of the Offer is opportunistic
· The Offer terms fail to take account of Gladstone's robust business structure, market leadership, the quality of its products and investments in a new technology platform which will enable expansion across several new and existing markets and the future prospects in both the Health & Leisure and Education markets.
· Gladstone has a strong balance sheet with significant cash and no borrowings and it is ideally positioned for growth across all its markets and to take advantage of any opportunities that may arise.

In the end I think it will come down to the price that Constellation (or any other potential bidder) would offer for the business.

Either way, shareholders in Gladstone should get more that the 25p currently on the table. As I noted in my last post on this topic, if no one else enters the fray, I suspect that an increased offer of around 30p will see Constellation win (and still get a bargain).

P.S. I am a shareholder in Gladstone - and, as ever, DYOR

Northgate completes Anite PS acquisition

As expected, Northgate completed its acquisition of Anite’s Public Sector division on Friday. I covered this acquisition in last week’s blog (following news that the acquisition was not going to be referred to the Competition Commission), but what now for Anite?

As noted in last week’s blog, 6-8 years ago, Anite had a knack of buying businesses that were just going ex-growth, but at high prices. Now it has two businesses that are in markets that are both declining – a Wireless Testing division and a Travel division. Yes – it can use the £54m from Northgate to clear its debt and possibly buy-back some shares, but longer term it is not out of the wood.

Holways HotViews (sorry – UKHotViews now) has a good
article on this – I agree with his expectation of another step before Anite’s transformation is complete – but the Anite Board has struggled to deliver good news over the past few years, and I would not be surprised to see Anite’s share price decline considerably over the coming months as the Anite Board tries to complete that transformation.