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Robert Liu[May 9, 2005]

ScanSoft, Nuance in $221 Million Merger


ScanSoft and Nuance Communications have signed a definitive agreement to merge into a single speech automation company that will handle more than 20 million contact center and directory assistance calls per day. The cash-and-stock deal is valued at approximately $221 million, the two companies announced on Monday.

“Today is an important day for ScanSoft,” ScanSoft Chairman and CEO Paul Ricci said on a conference call to discuss the deal, latest quarterly results and a cash infusion from ScanSoft’s largest shareholder, equity firm Warburg Pincus.

The combined companies, which will take the Nuance corporate name, hope the merger with Nuance will result in cost savings of about 20 million to 25 million through headcount reduction and other cost cutting measures.

“Our two companies share a history of innovation. We pioneered this industry,” explained Chuck Berger, president and CEO of Nuance, on the conference call. “Now we're bringing that collective history together as one company.”

But while the two companies rank among the leaders in the pure-play speech arena, the voice automation market has proved lucrative enough to draw the attention of the larger systems integrators like Cisco and IBM, who recently team up to capture more voice portal business – a point that didn’t escape Berger or Ricci during the Q&A portion of the conference call.

Under the terms of the agreement, Nuance shareholders will get 0.77 shares of ScanSoft for each Nuance share. Additionally, each Nuance shareholder will receive $2.20 of cash for each share. The transaction is valued at approximately $221 million based on the closing price of ScanSoft common stock of $4.46 per share on May 6, 2005, or $122 million net of Nuance's cash and equivalents of $98.7 million on March 31, 2005, which includes $11.1 million of restricted cash. ScanSoft will issue approximately 28 million shares of its common stock in the transaction.

To help finance the transaction, Warburg Pincus has agreed to purchase 14.2 million shares from ScanSoft at a price of $4.24 a share (the closing bid price on Thursday, May 5, 2005) or a total of $60 million. While this deal is contingent on ScanSoft closing the Nuance merger, Warburg Pincus has also agreed to buy 3.54 million shares at a purchase price of $4.24 per share for an aggregate investment of $15 million. The latter deal is independent of the Nuance transaction.

Upon closing, ScanSoft expects to have approximately $80 million in cash and marketable securities. In ScanSoft's fiscal year 2006, the company expects combined revenue to range from $315 million to $325 million. ScanSoft expects that the transaction will be accretive to ScanSoft shareholders for fiscal year 2006.

Paul Ricci will be the chairman and CEO of the merged company. As part of the transaction, two of Nuance's board members, including Chuck Berger, president and CEO of Nuance, will join the ScanSoft board of directors. The transaction has been approved unanimously by both Boards of Directors and is subject to the approval of ScanSoft and Nuance shareholders and normal closing conditions that include regulatory approvals. Information regarding the special meetings of shareholders will be announced at a later date. ScanSoft expects the transaction to close in September 2005.

ScanSoft and Nuance are sponsors of the Speech-World Conference and Expo, taking place on May 24-26, 2005, in Dallas.Speech-World and TMCnet are both owned by Technology Marketing Corporation (TMC).

Robert Liu is executive editor at TMCnet.  Previously, he was executive editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg.  He can be reached at rliu@tmcnet.com.


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