Open Text Corporation (NASDAQ:OTEX) Files An 8-K Other Events
Item8.01 Other Events
As previously announced by Open Text Corporation (OpenText or the
Company) on September12, 2016, and reported on OpenTexts Current
Report on Form 8-K dated September12, 2016, the Company entered
into a Master Acquisition Agreement dated September12, 2016 (the
Master Acquisition Agreement), with EMC Corporation, a
Massachusetts corporation, EMC International Company, a company
organized under the laws of Ireland, and EMC (Benelux) B.V., a
besloten vennootschap organized under the laws of
Netherlands (collectively referred to as Dell-EMC), to which
OpenText has agreed to acquire (the Anticipated Acquisition)
certain assets and assume certain liabilities of the enterprise
content division of Dell-EMC (the ECD Business). The Anticipated
Acquisition is expected to close within 90 to 120 days of the
date of the Master Acquisition Agreement and is subject to
customary regulatory approvals and closing conditions.
Filed herewith under the exhibits are the following:
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Audited consolidated financial statements of the ECD Business as of December31, 2015 and 2014 and for the years ended December31, 2015 and 2014. |
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Unaudited consolidated financial statements of the ECD Business as of September30, 2016 and December31, 2015 and for the nine months ended September30, 2016 and 2015. |
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Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September30, 2016, presented as if the Anticipated Acquisition and the financing transactions described therein occurred on September30, 2016, and the Unaudited Pro Forma Condensed Consolidated Statements of Income for the year ended June30, 2016 and for the three months ended September30, 2016, presented as if the Anticipated Acquisition of the ECD Business and the financing transactions described therein occurred on July1, 2015. |
The Company is not yet required to file the historical financial
statements of the ECD Business under Article 3-05 of Regulation
S-X under the Securities Act of 1933, as amended (the Securities
Act), or pro forma financial statements giving effect to the
Anticipated Acquisition under Article 11 of Regulation S-X under
the Securities Act on a Current Report on Form 8-K. However, the
Company is filing the historical audited and unaudited financial
statements of the ECD Business and the unaudited pro forma
condensed consolidated financial statements with this Current
Report on Form 8-K to aid investor understanding and to comply
with the rules of the Canadian securities regulatory authorities
in connection with a proposed offering of its common shares that
is being made in each of the provinces of Canada in addition to
the United States.
The Acquisition
On September12, 2016, OpenText entered into the Master
Acquisition Agreement to acquire the ECD Business. The purchase
price for the Anticipated Acquisition, which is payable in cash,
is approximately $1.62 billion.
OpenText expects the initial closing of the Anticipated
Acquisition to take place within 90 to 120 days of the date of
the Master Acquisition Agreement, except in certain jurisdictions
where requirements of local law require the transfer of local
assets and liabilities to be deferred to a later date. The
consummation of the Anticipated Acquisition is subject to certain
customary conditions. The consummation of the Anticipated
Acquisition is not subject to any financing condition. Further
information about the Anticipated Acquisition, including a copy
of the Master Acquisition Agreement, is contained in OpenTexts
Current Report on Form 8-K filed with the SEC and the applicable
Canadian securities regulatory authorities on September13, 2016
and September12, 2016, respectively.
The ECD Business
The following information should be read in conjunction with the
financial statements of the ECD Business as of and for the years
ended December31, 2015 and 2014, and as of September30, 2016 and
for the nine months ended September30, 2016 and 2015, included in
this Current Report on Form 8-K as Exhibit 99.1 and Exhibit 99.2.
The ECD Business provides enterprise software and cloud solutions
that help organizations leverage their business content
throughout its lifecycle to drive their digital agenda. The ECD
Business offerings include enterprise content management
solutions and archiving software. The ECD Business enterprise
content management solutions enable the digitization and flow of
content through organizations and include intelligent capture of
information, enterprise content library services, customer
communications,
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information governance and compliance as well as purpose built
industry solutions. The ECD Business archiving software helps
customers take cost out of their current information technology
(IT) environments by archiving inactive information to
decommission legacy applications and make their current
applications run better.
The ECD Business is headquartered in Pleasanton, California. The
ECD Business employs approximately 2,000 individuals and has more
than 5,600 customers worldwide across the Americas, the EMEA
region, which primarily consists of countries in Europe, Africa,
and the Middle East, and the Asia Pacific region, which primarily
consists of Japan, Australia, China, Korea, Philippines,
Singapore and New Zealand. Customers of the ECD Business operate
in a wide range of industry verticals, including those in which
OpenText has a strong presence as well as those that complement
OpenTexts current industry focus. For the year ended December31,
2015, the ECD Business had revenue of approximately $581 million
and gross profit of $384 million, compared to $629 million and
$404 million in 2014, respectively. From 2014 to 2015, the ECD
Business gross margins increased from 64.2% to 66.1%.
The ECD Business offers a suite of leading Enterprise Content
Management (ECM) solutions with deep industry focus, including
the Documentum, InfoArchive and LEAP product families, as well as
a secondary portfolio of related products. The Anticipated
Acquisition is expected to deepen OpenTexts existing Enterprise
Information Management (EIM) offerings with a substantial
portfolio focused on ECM and Information Life Cycle Management
markets.
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Documentum features a set of proven products that enable customers to better manage content across the enterprise with security and compliance. It consists of an expansive portfolio of products, including but not limited to Documentum Content Server, Documentum Records Manager, Documentum D2, and Documentum xCP. The Documentum product line also includes industry solutions for life science, healthcare, energy and engineering, addressing activities such as clinical trials, regulatory submissions, medical image management, capital projects management, and asset operations. |
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InfoArchive enables IT organizations to decommission legacy apps and archive inactive data, significantly reducing IT costs. It also extracts data from these legacy environments for reuse in third-platform applications and for more complete analysis and insight. |
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LEAP offers a next-generation SaaS platform for ECM. It is comprised of a set of consumer-grade, end-user productivity apps that enable users to access, share, create and collaborate on content in entirely new ways across any device. |
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Related portfolio products include Captiva, ApplicationXtender, Document Sciences xPression, and eRoom, which provide capabilities in the areas of information capture, document management, customer communications management, and collaboration. |
The ECD Business markets and sells its products through a direct
sales force and indirect channels such as independent
distributors and value-added resellers.
Strategic Rationale for the Anticipated
Acquisition
We anticipate the Anticipated Acquisition will provide several
significant strategic benefits to OpenText, including the
following:
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Expand OpenTexts EIM products and services portfolio. The Anticipated Acquisition is expected to deepen OpenTexts EIM offering with a set of proven products that enable customers to manage content across the enterprise with security and increased information governance and compliance. |
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Onboard deep industry solutions, intellectual property and expertise. The Anticipated Acquisition will bring new capabilities focused on the ECM and Information Management Lifecycle markets, a strong intellectual property portfolio and approximately 2,000 employees with deep market and industry experience. |
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Access a new installed base of marquee customers in key verticals. The Anticipated Acquisition adds solutions and capacity to the OpenText portfolio for the healthcare, life sciences and public sector verticals, while strengthening OpenTexts presence in financial services, utilities and industrial goods. The ECD Business products are deployed to the ten largest global pharmaceutical companies, nine of the ten largest global banks, nine of the ten largest global insurance companies, seven of the ten largest global oil and gas companies and eight of the ten largest U.S. utility companies. The ECD Business products are deployed to more than 5,600 customers globally. |
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Provide mutual cross-sell opportunities for both OpenText EIM and ECD Business customers. We believe the Anticipated Acquisition has the potential to enable OpenText to cross-sell its EIM portfolio to the ECD Business customers as well as offer the ECD Business customers OpenText cloud services, managed service arrangements and SaaS offerings. |
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Consistent with our MA growth strategy. We have a stated goal of driving growth with selective acquisitions. Over the past several years, we have acquired companies that augment our existing solutions and expand our reach into new adjacent areas and geographies. We believe the Anticipated Acquisition underscores what we view as a core competitive advantage in sourcing, acquiring and integrating highly complementary companies. |
Preliminary Financial Impact of the Anticipated
Acquisition
The Company believes that the Anticipated Acquisition will
contribute strong recurring revenues, net income and operating
cash flow to OpenText. We expect to be able to align the ECD
Business with OpenTexts target adjusted operating margin profile
within 12 months of the completion of the Anticipated
Acquisition, driven in large part by anticipated cost savings
realized from the following areas:
| The elimination of duplicate corporate level costs; |
| Lower marketing and branding costs; |
| Efficiencies from increased scale of operations; |
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The migration of customer support, services, research and development and general and administrative labor to lower cost jurisdictions; and |
| Sales channel efficiencies. |
We expect to incur non-recurring, one-time transition costs of
approximately $15 million related to anticipated IT integration,
employee on-boarding and contract negotiation, in the first year
post closing. In addition, OpenText may incur other
non-recurring, one-time transaction charges related to severance
expenses and restructuring associated with the Anticipated
Acquisition. These charges are similarly expected to be realized
in the first year after closing.
OpenText anticipates that the Anticipated Acquisition will be
accretive to the Companys earnings per share (EPS) and
non-GAAP-based EPS, beginning in the quarter the Anticipated
Acquisition closes.
We caution you that OpenText may not realize the anticipated
benefits of the Anticipated Acquisition. Additionally, the ECD
Business is subject to risks similar to those applicable to
OpenTexts existing business, and OpenText will continue to be
subject to those risks following the Anticipated Acquisition.
Such risks may be exacerbated should the Anticipated Acquisition
close and the ECD Business products are added to OpenTexts
existing EIM portfolio. See Risk Factors in Item1A of OpenTexts
Annual Report on Form 10-K for the fiscal year ended June30, 2016
and in Item1A of OpenTexts Quarterly Report on Form 10-Q for the
quarter ended September30, 2016.
Forward-Looking Statements
This report contains forward-looking statements concerning the
future performance of OpenTexts business, its operations and its
financial results and condition, including with respect to the
Anticipated Acquisition, the financing transactions related to
the Anticipated Acquisition, the anticipated cost savings from
the Anticipated Acquisition and accretion to EPS and
non-GAAP-based EPS beginning in the quarter the Anticipated
Acquisition closes, and the anticipated integration of the ECD
Business. Forward-looking statements are identified by words or
phrases such as anticipates, expects, believes, estimates,
intends, could, may, plans, predicts, projects, will, would,
foresees and other similar expressions or the negative of these
terms. These statements reflect beliefs and assumptions which are
based on OpenTexts perception of historical trends, current
conditions and expected future developments, as well as other
factors management believes are appropriate in the circumstances.
OpenTexts beliefs and assumptions are inherently subject to
significant business, economic, competitive and other
uncertainties and contingencies regarding future events and, as
such, are subject to change. OpenTexts beliefs and assumptions
may prove to be inaccurate and consequently the Companys actual
results could differ materially from the expectations set out
herein.
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Actual results or events could differ materially from those
contemplated in such forward-looking statements as a result of
risks and uncertainties.Certain of these risks and uncertainties
are described from time to time in OpenTexts filings with the
SEC, including, but not limited to OpenTexts Annual Report on
Form 10-K for the fiscal year ended June30, 2016 and Quarterly
Report on Form 10-Q for the quarter ended September30, 2016, as
well as documents filed with securities regulatory authorities in
Canada. If any of these risks or uncertainties materialize or any
of these assumptions prove incorrect, the actual results or
performance of OpenText and its consolidated subsidiaries could
differ materially from those expressed or implied by
forward-looking statements.Any forward-looking statement the
Company makes in this report speaks only as of the date on which
it is made. New risks and uncertainties arise from time to time,
and it is impossible for the Company to predict these events or
how they may affect the Company. In any event, these and other
important factors may cause actual results to differ materially
from those indicated by the Companys forward-looking statements.
The Company has no duty, and does not intend, to update or revise
the forward-looking statements made in this document, except as
may be required by law. In light of these risks and
uncertainties, future events or circumstances described in any
forward-looking statement in this document might not occur.
Item9.01 Financial Statements and Exhibits
(a) Audited Consolidated Financial
Statements of the ECD Business
The following audited financial statements of the ECD Business
are included as Exhibit 99.1 to this Current Report on Form 8-K:
| Report of Independent Auditors, Pricewaterhouse Coopers LLP |
| Consolidated Balance Sheets as of December31, 2015 and 2014 |
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Consolidated Statements of Operations for the years ended December31, 2015 and 2014 |
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Consolidated Statements of Cash Flows for the years ended December31, 2015 and 2014 |
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Consolidated Statements of Changes in Net Investment of Parent for the years ended December31, 2015 and 2014 |
| Notes to the Audited Consolidated Financial Statements |
(b) Unaudited Consolidated Financial
Statements of the ECD Business
The following unaudited financial statements of the ECD Business
are included as Exhibit 99.2 to this Current Report on Form8-K:
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Consolidated Balance Sheets as of September30, 2016 and December31, 2015 |
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Consolidated Statements of Operations for the nine months ended September30, 2016 and 2015 |
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Consolidated Statements of Cash Flows for the nine months ended September30, 2016 and 2015 |
| Notes to the Unaudited Consolidated Financial Statements |
(c) Unaudited Pro Forma Condensed
Consolidated Financial Statements
The Unaudited Pro Forma Condensed Consolidated Financial
Statements of OpenText, giving effect to the Anticipated
Acquisition and the financing transactions described therein as
if they occurred on September30, 2016 for the Unaudited Pro Forma
Condensed Consolidated Balance Sheet, and on July1, 2015 for the
Unaudited Pro Forma Condensed Consolidated Statements of Income
for the year ended June30, 2016 and for the three months ended
September30, 2016, are included as Exhibit 99.3 to this Current
Report on Form 8-K:
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Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September30, 2016 |
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Unaudited Pro Forma Condensed Consolidated Statement of Income for the three months ended September30, 2016 |
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Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended June30, 2016 |
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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements |
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(d) Exhibits
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| 23.1 |
Consent of Independent Accountants, PricewaterhouseCoopers LLP |
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| 99.1 |
Audited consolidated financial statements of the ECD Business, as of and for the years ended December 31, 2015 and 2014 and the notes related thereto |
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| 99.2 |
Unaudited consolidated financial statements of the ECD Business as of September 30, 2016 and December 31, 2015 and for the nine months ended September 30, 2016 and 2015 and the notes related thereto |
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| 99.3 |
Unaudited Pro Forma Condensed Consolidated Financial Statements of OpenText after giving effect to the Anticipated Acquisition and the financing transactions described therein |
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About Open Text Corporation (NASDAQ:OTEX)
Open Text Corporation provides a platform and suite of software products and services that assist organizations in finding, utilizing, and sharing business information from any device. The Company designs, develops, markets and sells Enterprise Information Management (EIM) software and solutions. Its EIM offerings include Enterprise Content Management (ECM), Business Process Management (BPM), Customer Experience Management (CEM), Business Network, Discovery and Analytics. Its software and services allow organizations to manage the information that flows into, out of, and throughout the enterprise as part of daily operations. Its solutions incorporate collaborative and mobile technologies and are delivered for on-premises deployment, as well as through cloud, hybrid and managed hosted services models. In addition, the Company provides solutions that facilitate the exchange of information and transactions that occur between supply chain participants. Open Text Corporation (NASDAQ:OTEX) Recent Trading Information
Open Text Corporation (NASDAQ:OTEX) closed its last trading session up +0.13 at 61.27 with 336,347 shares trading hands.