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M&A Challenges October of 1999 Ken Sexton, SVP & CFO

M&A Challenges October of 1999 Ken Sexton, SVP & CFO Outline Background M&A War Stories Lessons Learned Conclusion MERANT Today Combination of Micro Focus plc and INTERSOLV, Inc Worldwide Presence - 50 countries NASDAQ & London Exchange Revenues $375 Million+ $600 Million Market Cap

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M&A Challenges October of 1999 Ken Sexton, SVP & CFO

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  1. M&A ChallengesOctober of 1999Ken Sexton, SVP & CFO

  2. Outline • Background • M&A War Stories • Lessons Learned • Conclusion

  3. MERANT Today • Combination of Micro Focus plc and INTERSOLV, Inc • Worldwide Presence - 50 countries • NASDAQ & London Exchange • Revenues $375 Million+ • $600 Million Market Cap • $120 Million in Cash • M&A History Leader in Enterprise Application Development

  4. Belgium Acquisition…… • Company Background • Belgium based • VC funded…Plans to go Public • $20m business, with losses • Large in Japan • Strategic Reasons • Buy vs. build….time to market • Presence in Japan • Sellers Objective • VC’s want high return! • Show me the money

  5. Belgium Acquisition….. • Lets Make a Deal • Oct. 95 • Pooling Transaction • $80m Value • Good News • Technology Fits • Non-US Shareholders more Liquid • Stability of Belgium Employees • Bad News • Never Leveraged Japan • Expensive to Restructure • Belgium’s View of Options & Bonuses • Dilutive….Never paid for itself

  6. UK Acquisition…... • Company Background • Founder owned 45% • VC owned 45% • UK based • $10m in Revenue • Strategic Reasons • Complementary product • SYNERGY+ • Seller’s Objective • VC…Liquidity • Founder…Wealth

  7. UK Acquisition……. • Lets Make a Deal • March 98 • $20m Value • Pooling….All Stock • Good News • Marriage Made in Heaven • UK Shareholders Long-term View • Stability of UK Employees • Bad News • US Employment Practices • Expensive to Restructure • Negotiations Focused on Governing Law • Weakness of Non-competes

  8. Micro Focus + INTERSOLV Merger • Micro Focus • CA based, with UK Roots • Founded in London • London Exchange • INTERSOLV • MD Based • 15 Year History of M&A • NASDAQ Listed • Merger Overview • Merger of Equals • Micro Focus Acquired INTERSOLV • $500m Value • Pooling in US • Purchase Method in UK

  9. Micro Focus + INTERSOLV MergerGood News…….. • Communications to Shareholders • Solicitation Rules in UK • Geographical Concentration • LSE Flexibility • Focus on EBITDA (Cash) • UK Shareholders More Long-term • Lawsuits More Likely in US

  10. Micro Focus + INTERSOLV MergerBad News……….. • Two Sets of Rules • GAAP • LSE vs SEC • Anti-Trust • Two Sets of Practices • Press Releases • Face-to-face Meetings • LSE’s Acquisition Requirements • UK Rules Dilute Lock-up Provisions • US Shareholders View of ADRs • UK Shareholders View of Options • Long-term Nature of UK…Effect on Liquidity

  11. Cross-Boarder Complications • Stock Exchange Rules • NASDAQ 10% Rule vs. Multiple LSE Rules • Disclosures in complete conflict • Accounting Rules • Pooling vs Purchase • Pre-goodwill Earnings • Local Practices • Press Releases….variances of styles • Employment Law • Incentives…Options & Bonus • Global View

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