Tuesday, March 29, 2011


Big money can be made with a merger or acquisition, and one of the biggest may be taking place if Oracle wins the bid for Lawson Software. Traders that profit from mergers and acquisitions are betting the $1.8 billion takeover of Lawson Software Inc. will get trumped by a higher offer, with Oracle Corp. the most likely bidder.

Lawson Software, which counts billionaire investor Carl Icahn as one of its biggest shareholders, has risen 4.4 percent above the offer of
$11.25 a share from Infor and Golden Gate Capital disclosed March 11, according to data compiled by Bloomberg. That’s more than any U.S.
deal over $500 million. Oracle, the second-biggest seller of business applications software, may buy Lawson.

Oracle stands to profit from Lawson Software’s electronic medical records and software for task management, which analysts estimate will help push the St. Paul, Minnesota-based company’s earnings to a record this year. A bidding contest would also increase Icahn’s windfall from his 10.9 percent stake in Lawson Software, which currently represents a 51 percent gain.

Lawson Software, which jumped 15 percent in the week ended March 11 on speculation it was putting itself up for sale, closed at $11.75 yesterday. That’s higher than the all-cash offer of $11.25 a share from Alpharetta, Georgia-based Infor and buyout fund Golden Gate Capital of San Francisco.

The bid represented an 8.4 percent premium to Lawson Software’s average price in the 20 days prior to the offer. Including net debt, the takeover valued Lawson Software at 14.8 times earnings before interest, taxes, depreciation and amortization.

By both measures, the price for Lawson Software is lower than other acquisitions in the industry. The average premium for so-called enterprise software and services takeovers of more than $500 million equaled 41 percent. The median Ebitda multiple for deals in the industry has been 20.2 times.

Oracle, with $24.4 billion in cash and equivalents, has historically offered a median 22.3 times Ebitda in takeovers and only paid less than 20 times once -- when it agreed to buy Sun Microsystems Inc. for 8.3 times Ebitda in April 2009.

Oracle may bid for Lawson Software because of a U.S. law that now requires hospitals and other providers to adopt electronic medical records and billing systems in order to receive higher payments for patients enrolled in federal health care programs. Lawson sells the software that providers need to make the switch.

Lawson Software’s unit that targets customers in the health-care industry and used cisco switches, had an operating margin of 23.8 percent in the three months ended November, its filing with the Securities and Exchange Commission showed. That compares with 7.4 percent for the division that sells software to manufacturers.

Analysts estimate that Lawson Software will earn $85.3 million in net income before abnormal items in its fiscal year ending May, an increase of 24 percent. Earnings may top $100 million next fiscal year before jumping 38 percent in 2013.

Shares of Lawson Software have climbed 77 percent in the past year, bringing its market value to $1.92 billion.

Oracle finds that attractive because that’s a very big area in terms of money. Hospitals are in the process of becoming more and more high tech. Medical care in America is a hundreds of billions of dollars a year proposition.

While speculation of an Oracle bid has lifted shares of Lawson Software, it’s no guarantee one will materialize, and it is unclear if there are any other buyers

Even without a competing offer, Icahn still stands to gain from his stake in Lawson Software. The 75-year-old investor, who made millions in the 1980s pressuring companies from USX Corp. to Texaco Inc. to split up or boost dividends and buybacks, reported an 8.54 percent stake in Lawson Software in May and said he intended to seek talks with management to boost shareholder value.

He owned 17.85 million shares as of March 14, which he acquired for about $139 million, or $7.79 a share. Icahn said in the filing that he supports Lawson Software’s strategic process and that the company should be sold at the highest price.

Based on the original $11.25 offer price, Icahn would make $62 million, or a profit of about 44 percent, from his Lawson Software stake. At yesterday’s closing price, his windfall would increase to about 51 percent.