Following the offering, the company will have 196,800,024 ordinary shares. This figure includes 31.6 million non-voting ordinary shares. 90.9% of the share capital after the offering will be held by the same shareholders. The major shareholder is investment group Welsh, Carson, Anderson & Stowe (WCAS), of New York. After the offering, this group will hold 29.2%, more than 57.3 million shares. The shares are held by the group's various companies, and by the partners themselves.
In addition, WCAS and several other investors whose names do not appear in the prospectus, loaned Amdocs's subsidiary ESM money, in the form of debentures bearing 10% interest. Part of the $284 million loan was used to purchase knowhow from Southern Bell subsidiaries ($40 million), and an undisclosed amount was for company restructuring before the offering.
$478.7 million was paid in dividends to shareholders, including $39.9 million to new shareholders WCAS. There were different responses to this extraordinary dividend on the eve of the offering, which created negative shareholders' equity that will remain negative even after $253 million net is raised.
Consultants to WCAS were Lazard Freres, one of the most prestigious investment houses in the US. Lazard not only received over $4 million, including expenses, for the consultation, it is also a shareholder and creditor in Amdocs. Lazard purchased (as part of the WCAS deal) 3.1 million shares, and participated in $6.2 million of the $123.5 million the company borrowed from the WCAS group.
Complicated? That is just the beginning, though it shows us that the underwriters were just as eager to underwrite as Amdocs was to be underwritten, even more so. WCAS is not at all worried, evidence of which lies in the fact that they gave voting rights on a large portion of their shares to Amdocs International (AIL), the founding company.
The second largest shareholder is SBC International Inc., a fully-owned subsidiary of telecom giant Southern Bell. In fact, SBC and the founding group each hold the same percentage, 25.8% before the offering, and 23.4% after.
SBC holds all the ordinary non-voting shares, but these are dividend bearing. If the underwriters exploit the green shoe, all the 2.7 million shares that will be sold come from SBC's holdings, which will bring it down to 22%, but will afford its large pockets $40 million (perhaps we are becoming paranoid, but this amount is the same as the amount Amdocs paid SBC for the purchase of knowhow).
Amdocs International (AIL), as stated above, holds 25.8% prior to the offering, which will decline to 23.4% following it. The central figure at Amdocs is Morris Kahan, although he is not mentioned as a company executive or director. SBC and AIL have an options agreement with WCAS, based on "success" or "failure" scenarios.
SBC and AIL both have call options on 15,198,040 shares of WCAS holdings, gratis. If, in 1998 and 1999 Amdocs succeeds in reaching several targets stipulated in the agreement (specific details of the targets are not provided, but they depend on business activities), SBC and AIL have the right to these shares, free of charge, from WCAS. In that event, WCAS holdings will drop to 24.1%, while the holdings of the other two climbs to 26.5% each.
Pre-offering shareholders invested $212 million on average, based on $2.4 per share. Public shareholders will enter at $15 per share, and invest $270 million.
The new shareholders' dilution is significant. Usually, investors in high-tech companies lose a high percentage of their initial investment. In the case of Amdocs, the investor immediately loses all his investment, and slightly more. The share's book value prior to the offering is negative, $-1.68 per share. Total revenue from the offering will cover $1.44, still leaving a negative balance of $0.24 per share.
Published by Israel's Business Arena June 16, 1998