The popular movie Matrix (a cinematic masterpiece, according to some people) portrays a world controlled by machines. In the movie, everyone shares the illusion that he controls his life, but his brain is actually connected to wires that simulate the physical world, while his body is being eaten away. A reasonable assumption is that Formula Systems (Nasdaq: FORTY) chairman Dan Goldstein had part of the movie in mind when he chose the name Matrix for the new activity of ForSoft (Nasdaq: FORS) on the Tel Aviv Stock Exchange (TASE).
As in the movie, Goldstein’s investors believe the wizard will manage to increase the value of his group’s companies by various and sundry means. Most of the life elixir of the companies he owns (i.e. the cash) is concentrated in the Formula brain control center.
This brain center is responsible for acquiring new companies and choosing new operational theaters, which constantly provide it with new playing fields. We stress that this metaphor is not a criticism, but a compliment. It looks as if many will not awaken to the reality offered by Goldstein – not while they are still enjoying the handsome dividends he distributes, at any rate.
Dan Goldstein prefers to see himself as Keanu Reeves, the star of the movie, not as the machine. “With Nasdaq’s current situation and the market’s current lack of interest in information technology (IT) companies, particularly those that operate mostly outside the US, ForSoft has concluded its US stock exchange activity. We have therefore transferred it to the Tel Aviv Stock Exchange.”
Matrix will unite a number of Formula companies, headed by ForSoft. Formula announced two weeks ago that it would acquire control of TASE-listed company Romtech. Under the agreement, Romtech will allocate 85% of its shares to Formula in exchange for complete ownership of ForSoft.
It was clear from the outset that ForSoft was being inserted into a stock exchange shell in two stages. The first stage was Formula’s tender offer to purchase at a $117 million company value for ForSoft’s shares traded overseas. Formula paid $40 million and now holds full ownership of the company. The second stage was the acquisition of Romtech and its merger with ForSoft’s activity.
In any case, when we examine the negotiable assets being transferred into the new shell, a quite interesting picture emerges. In the prospectus it submitted, Romtech announced that ForSoft had distributed a NIS 160.5 million dividend in April, in addition to the NIS 60 million dividend distributed in December 2000. ForSoft has therefore shed NIS 220 million. When it was traded on Nasdaq, the company raised considerable capital and had NIS 250 million in cash reserves. The money was taken from ForSoft to finance the expensive tender offer to purchase on Nasdaq, leaving the company with only NIS 29 million in cash reserves.
”We paid $40 million to take the company away from Nasdaq, more or less the same amount of cash we took out of the company to cover the acquisition. It appears worthwhile to us to have it listed on the TASE,” Goldstein says. Anticipating criticism for withdrawing cash from ForSoft, Goldstein adds, “The money taken from ForSoft is the money paid to turn it into a private company. We decided to pay the shareholders at the issue price. We issued ForSoft shares at $9 and decided to buy them back at $9 – exactly the same price. We raised $40 million and returned exactly the same amount to the US investors.”
ForSoft currently functions as the Formula Group’s central software house. ForSoft provides software services and applications to large organizations in all sectors in Israel, and deals with practically all common computer platforms. ForSoft’s main strength is in the telecommunications and banking markets. The company aspires to become a major player in the e-business field, a niche market currently without a dominant player, while focusing on telecommunications and banking.
From now on, ForSoft; Bashan Systems; Nikuv Computers; Elron Software, recently acquired from Elron (Nasdaq: ELRN); and T-Soft, which deals with banking, will all be operating in the Matrix framework. Matrix will have 1,000 employees and a $280 million sales turnover. A reasonable assumption is that it will compete against the large computer solution companies, such as Ness Technologies and IBM, which is expanding its activity in Israel.
”Globes”: ForSoft is now a company with very little cash, compared with its situation a year ago. Isn’t that bad?
Goldstein: ”ForSoft doesn’t require a lot of cash to operate on the TASE. The company needed a lot of cash to develop in the US. Since that was unsuccessful, we currently don’t need $40 million in cash reserves. With that money, you can acquire a number of software houses.”
What does Matrix want to accomplish in the market?
”We want to create a company that will be strong in several market segments. Since Bashan and ForSoft have customers in the telecommunications division, they can now provide many more services in the field. The company will have about 1,000 employees, a critical mass.”
How did you choose the name? Is there a connection with the movie?
”It wasn’t a simple process. We got the employees involved by asking each of them to choose names that he liked, and we eventually agreed upon a name. I hope company management will be as dynamic and vocal as Keanu Reeves’s people.”
Published by Israel's Business Arena on August 28, 2001