339 million of Polycom (PLCM) shares were swapped for full ownership of Accord Networks (ACCD). The deal was based on 0.3065 of Polycom shares for one Accord share, reflecting a $14.1 share price for Accord – a 199% premium over its $6.4 market price yesterday. Under the deal, 6.26 million Polycom shares will become part of the company’s float and another 1.5 million shares will be exchanged for the options distributed by the company.
The incubation period before the acquisition was brief. “Globes” has learnt that negotiations started about two months ago, when Polycom CEO Bob Hagerty approached Accord Networks CEO Jules DeVigne.
Accord is incorporated in Israel, so its shareholders must approve the offer. In its announcement, Accord explains that the merger also requires approval by the Israeli and US regulatory authorities, which is why Polycom assesses that the merger will be completed by the end of Q1 2001. The merger date is very significant for investors interested in selling off their shares and exiting the company. The merger, based on the pooling of interests method, will impose on investors a 30-day holding period, which means that the merger date will determine the profit-taking date. Matty Karp, associate manager at Concord, Accord’s biggest shareholder (16%) is not worried. “It won’t be a Lucent-type merger, because Polycom and Accord, both with significant growth rates, are traded at reasonable p/e ratios of 30, 35. In my view, there’s a definitely handsome profit-taking opportunity, which is why I don’t regret the impossibility of a swift profit-taking.”
Polycom, a terminal equipment manufacturer, is traded on Nasdaq at a company value of $3.5 billion. The company sells conference room terminal equipment, such as video conferencing monitors and cameras. It is considered the world leader in this field, with a market slice of 50%.
Accord Israel CEO Amnon Shachar explains that the combination of Polycom’s terminal equipment and Accord’s infrastructure products will offer “an end-to-end solution, namely from one user through the communications network infrastructure to the other user. Teaming up with them brings us infrastructure that will leverage us. In terms of sales, we have a presence, but Polycom is far more significant, and together we can lead the video market and accelerate the introduction of new standards in video and audio communications,” says Shachar. Karp explains that synergy between the two companies is considerable, “because, by creating a simple and cheap end-to-end solution, with a strong global distribution operation, the merged company will be able to increase not only its own market slice, but the entire conferencing market as well.”
Accord was set up in 1994 when the late Gideon Rosenfeld teamed up with his brother-in-law Sigi Gavish. Rosenfeld had many years of experience in the high-tech industry, starting with Tadiran, through Scitex, and down to Orbot Instruments, as one of its entrepreneurs. The younger Gavish was chief engineer at Tadiran Telecommunications. The two focused on image compression, but later switched to video applications for communications networks. Armed with a couple of graphs and a lot of enthusiasm, the two set up a meeting with Matty Carp, manager of venture capital fund Nitzanim, in 1994. Karp was impressed with them, and decided to put $1.1 million into the company.
It is difficult to say that Karp’s investment in Accord yielded swift returns. In fact, venture capitalists consider Accord’s story an extreme example of Israeli venture capital funds’ stubbornness when it comes to keeping their portfolio companies alive.
Karp says he does not think he has gone too far, insisting that he did what should have been done. The company went through some rough patches, climaxing with Gideon Rosenfeld wanting to call it a day and have the company liquidated, after hardly any cash was left in its coffers, but we didn’t throw in the towel. One of the must important moves was to recruit a successful US CEO, Jules DeVigne. I definitely feel satisfied, because I’ve put myself out for this company, and I continued to do so until now. For me, this is coming full circle.”
Accord took time in focusing on IP, considered the dominant protocol. According to Shachar “50% of our current sales include IP-based network components.”
”Globes”:Will you go for the VoIP market?
Shachar:”It’s possible to work with our on audio only. It’s not expedient, but it’s definitely a clear target of ours.”
Which markets will you target in the future?
”There’s a whole new world of IP-based applications: distance learning, distance medicine, e-CRM. It’s several fields, all of which will give the video market a strong push, as well as other trends of cutting the price of terminal equipment and accessibility – expanding bandwidth. All are bringing video closer and closer. In the more distant future, I see a linkup between video and cellular.”
Published by Israel's Business Arena on 6 December, 2000