Open Text to Acquire Vignette

It was announced today that Open Text will acquire Vignette. They have entered into a definitive agreement pursuant to which Vignette will become a wholly owned subsidiary of Open Text. Vignette shareholders will receive US $8.00 in cash plus 0.1447 of an Open Text common share for every Vignette common share which equates to approximately US $12.70 at close of market on May 5, 2009. This represents a premium of approximately 74% above the 30 trading day average closing price of Vignette's shares and approximately 41% above the most recent closing price. This values the transaction at approximately US $310 million.

John Shackleton, President and Chief Executive Officer of Open Text, stated, "The combination of Vignette with Open Text will extend the breadth of our offerings and further Open Text's positioning as the leading independent ECM vendor in the marketplace."

"Vignette's customers represent some of the world's most powerful online brands and we are excited about the opportunity to expand the relationship with these customers and partners," said Shackleton.

"After a thorough evaluation of strategic and financial alternatives, the Vignette Board of Directors believes that today's announcement provides attractive value for our shareholders," said Mike Aviles, President and Chief Executive Officer of Vignette. "Our shareholders, customers, partners and employees will all benefit as Vignette combines with Open Text."
"Joining Open Text builds on our commitment to deliver the most innovative solutions for our customers and partners. Vignette has an enviable customer base, deep expertise in Web Content Management (WCM) and global distribution capabilities. Vignette customers will benefit from Open Text's expanded ECM solutions portfolio as well as their Vignette products being supported by the world's largest independent ECM solutions provider," said Aviles.

Vignette is based in Austin, Texas, and has approximately 700 employees. The transaction is expected to close in the second half of calendar 2009 and is subject to customary closing conditions, including approval by Vignette's shareholders, Hart-Scott-Rodino anti-trust clearance, Securities and Exchange Commission clearance and stock exchange approvals.

First Comment:
Vignette’s bleeding stopped today when Open Text announced its intent to acquire the troubled company. The handwriting has been on the wall for a long time as Vignette’s 2008 results were very poor, down almost 30%. Several years ago Vignette did a reverse 1 for 10 stock split, which foreshadowed their doom.

This acquisition continued Open Text’s spending spree and intent to acquire some big players in the market. Open Text have paid approximately just 2X revenue, (1 X revenue if you substract the $150M cash Vignette were sitting on) which is low considering it's size and prominence, and is in part due to Vignettes lack of profitability. This is in comparison to a 9% operating margin for Open Text so they need to make some economies to avoid diluting their own profitability. This should be achievable once they have made some cost cuts. It does give Open Text access to Vignette's customer base but from a technology viewpoint there is a lot of overlap. They do however, gain a java based portal product which could value to their offering. Maybe they are also looking to improve their maintenance stream and at the same time create a $1 billion dollar ECM powerhouse. Being the biggest "specialist" fish in the pond has in the past shown a good return for companies.


The key question will be; can the whole be greater than the sum of its disparate parts? Can also these separate pieces build into a cohesive offering suite and can they make sufficient cuts to make the business profitable. My guess is that they will.