Atlanta-based LHS Group Inc., a provider of billing and operations support software and services, agreed to merge with Europe-based Sema Group plc, an information technology services company, for approximately $4.7 billion in stock.
The new company, which maintain the Sema name, will become a leader in mobile communications software and services with 40 percent of the world market, according to Sema.
“We are delighted to have reached agreement with LHS on the terms of a merger,” said Pierre Bonelli, chief executive officer of Sema. “The combination will assist us in achieving our stated telecoms strategy of becoming the worldwide leader in customer care and billing, prepaid, messaging, value-added services and mobile commerce.”
The merger agreement calls for LHS shareholders to receive 2.6 new Sema ordinary shares for each LHS share owned. When the merger is completed, former LHS shareholders will control about 27 percent of the new company.
“The main rationale behind this merger is the ability to create substantial opportunities for revenue enhancement through market share,” said Bonelli.
The merger will provide Sema with a solid foothold outside the company’s heavy dependence on the European market where it is the second-largest IT service company and generates 88 percent of its revenues. The deal could double the company’s presence in the United States to close to 10 percent of its total sales.
Gary Cuccio, LHS chief executive officer, noted that of his company’s $262 million in revenue last year, 44 percent came from sales in North, Central and South America.
Combined, the companies posted sales last year of $2.4 billion, with operating profits of $210.2 million. Although Sema’s sales tower over those of LHS by an 8-1 ratio margin, LHS posted profits three times higher than Sema for each dollar of revenue.
Sema shareholders are taking a cautious approach to the multibillion dollar merger. Since the deal was announced last week, Sema stock has fallen to $21.41 per share by RCR press time on the London Exchange.
News of the merger lifted LHS’ stock from $40 per share to more than $55 per share on the tech-heavy Nasdaq, before settling at $50.63 at RCR press time.
“Basically they’re overpaying,” Michael Finney, an analyst for Donaldson Lufkin & Jenrette, told CNNfn. “Sema has no track record of major acquisitions.”
Finney also noted that the market was unhappy with Sema buying a current technology, instead of a future technology.
Sema reported that of the $600 million in combined revenue of the new company, approximately 20 percent would be from the mobile telecommunications business.
