Prokom: Asseco and Softbank to merge
Asseco and Softbank signed a merger agreement. It assumes that Softbank issues three series of shares:
i) 15,725,524 shares for Asseco shareholders. Shares exchange parity was set at 5.2311 of Softbank shares for 1 Asseco share, which reflects current market capitalization of the companies.
ii) 3,186,462 shares for Prokom is exchange for PVT and other, not specified, assets and contracts,
iii) 2,320,360 shares for the management.
The new merged entity is to be named Asseco Poland and its CEO will be Adam Goral, current CEO and the largest shareholder of Asseco. Transaction is expected to be completed in 1Q07. Prokom will own 25.5% of the new entity and consolidate it via full method. New Asseco Poland, at current market prices is going to have a capitalization of almost PLN 1.9b, i.e. similar to current capitalization of Prokom.
In our opinion the trading effects could be following:
- Asseco (mixed impact, may be negative in short-term) – we believe that one should look at this transaction from different angels. On one hand, the product offer of Asseco and Softbank are complementary to a large extent, so merger should not lead to product cannibalization. On the other hand, Asseco as a software house, records far higher operating margins than Softbank that mainly deals with integrating business. Therefore, a merger is likely to cause a dilution in margins. The light in the dark constitutes, as we see it, that the merged entity is to be named Asseco and managed by Mr Adam Goral, current CEO of Asseco, as we regard Asseco’s management far highly than Softbank management.
Additionally, obtaining of PVT was one of Asseco targets as the company wanted to develop outside Poland and create a CEE competence centre for proprietary products. At this moment, we are not sure whether this transaction will make Asseco give up its plans for floating Asseco Slovakia on WSE.
- Softbank (positive impact) – we believe Softbank should gain on this transaction as merger with Asseco solves its strategic problems, like lack of revenues diversification and strong dependency on PKO BP, where IT decisions have been postponed due to management changes as well as recent inability to gain large new contracts.
- Prokom (positive impact) – we believe that Prokom could be the winner in this transaction, as it usually takes place in intra group agreements. The merger should positively impact Prokom’s consolidated figures as with majority in supervisory board that the merged entity is going to be consolidated via full method – currently Prokom consolidates Softbank via full method, while Softbank consolidated Asseco via equity method from 1Q06.
At 10.00 the companies hold a meeting for analyst, so more details should be coming.