HP believed leading bidding for Mercury Interactive

Sources mention a price of $3.5 billion. The main sticking point is an indemnity for the buyers.

Mercury Interactive Corp. (Pink Sheets:MERQ) is an attractive acquisition target, especially in the wake of the options affair, which led to the resignation of chairman, president and CEO for 11 years, Amnon Landan. Sources inform ''Globes'' that in recent months, especially in the past month, Mercury has been holding a kind of discrete auction, under which it has received offers from a number of giant international companies.

Capital market sources believe that Hewlett-Packard Company (NYSE:HPQ), run by president and CEO Mark Hurd, has made the highest bid for Mercury, offering $3.5 billion, reflecting a premium of over 10% on the company’s current market cap. Mercury, now run by president, CEO and COO Anthony Zingale, who took over from Landan, specializes in business technology optimization (BTO).

Mercury said in response that it did not comment on speculation, and if it had an official announcement to make, it would do so.

So far as is known, the main sticking point in the negotiations is not Mercury’s value - since the company knows it will not get a premium on its current share price, which has risen sharply in recent months - but rather the creation of an indemnification mechanism attractive enough for buyers in all matters relating to the options affair, which is far from over.

The sale of Mercury has become a fairly protracted process, since a buyer will assume quite a few risks, including class action suits and possible fines imposed by the US Securities and Exchange Commission (SEC) or other regulatory agencies.

Even if fundamental difficulties arise in closing a deal with Hewlett-Packard, a capital market source said Mercury has decided to be sold rather than to continue as an independent company, which means that a sale is only a matter of time. Another source said that, prior to the options scandal, Mercury received, and rejected, an offer from SAP AG (NYSE; LSE:SAP; XETRA:SAPG) at $40 per share. Today, Mercury would welcome such an offer with open arms.

Other companies mentioned in the betting parlors as participants in Mercury’s public auction are SAP, IBM (NYSE: IBM), Oracle (Nasdaq: ORCL), and Computer Associates (NYSE:CA). “Globes” once wrote that Mercury was a target for a takeover attempt of the kind mentioned above. Since Mercury is registered in the US, representatives of foreign banks in Israel are not involved in the sale process. It is believed, however, that Citigroup Global Markets is advising the sale.

Published by Globes [online], Israel business news - www.globes.co.il - on May 1, 2006

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006

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