Swedish vendors Orc Software and Neonet are recommending a merger to their shareholders in a deal that would see them combine equity and derivatives trading technology expertise.
Orc will make a public offer to Neonet shareholders valuing the company at around SKr1,227 million (£105.5 million). The buyer is offering 0.125 new Orc shares for each share in Neonet. Adjusted for a proposed dividend in Orc, the offer represents SKr19.625 per share in Neonet, a 22% premium on the closing price on Friday 22 January.
Neonet's board is recommending the offer unanimously and shareholders representing 50.15% of the firm's stock have pledged to accept it. The move comes after Neonet pulled out of take-over talks with an un-named counterparty, rumoured to be Deutsche Börse, in January.
In its annual results statement published Monday, the firm reported an after tax loss of Skr17.7 million as operating revenues tumbled to Skr508.5 million from Skr716.2 million in the previous year.
With Neonet providing technology for equity trading and Orc concentrating on derivatives and connectivity, the firms say a merger will generate valuable synergies in income and costs, improving the operating income by SKr130 million annually.
The firms say there is a rising demand for integrated offerings for equity and derivatives trading. In addition, customers are calling for performance enhancements, more market connections, more integrated trading tools and alternative delivery models, "placing rigorous requirements on development and product offering".
The merged group will offer the world's fastest and most comprehensive market connections and a transaction network covering all leading exchanges, as well as alternative marketplaces such as MTFs and dark pools, claims Orc.
After the merger, the new group will consist of two parts; technology and transaction services. Technology, via licences and hosted offerings will constitute the base of operations, predicted to account for around 60% of turnover in 2010. Transaction services will provide a global execution network for equities and derivatives, accounting for around 40% of turnover this year.
Thomas Bill, CEO, Orc, says: "By joining forces, the merger will enable us to develop better technology, faster and at a lower cost. Following a period of powerful growth in Orc, this transaction will ensure access to a significantly larger potential market for the future group and thus create the conditions for continued strong growth."
The deal will lead to non-recurring expenses for restructuring of operations and transaction costs of around SKr70 million. The companies have set a preliminary settlement date of 7 April.