Comverse Inc. (Nasdaq: CNSI), formerly one of Israel’s flagship high-tech companies, is in the process of gradually divesting its assets. Just one week after announcing its cooperation agreement with India’s Tech Mahindra, which includes the transfer of hundreds of Comverse digital services employees to the Indian company, it has become apparent that Comverse is in talks to sell a second division - its billing division - to Amdocs Ltd. (NYSE: DOX), for $300-400 million.
The talks are at an advanced stage, but a final agreement between the parties has not yet been signed, and it is not certain that one will. Amdocs, under the management of president and CEO Eli Gelman, trades on the Nasdaq at a market cap of $8.6 billion, and at the end of 2014, the company had $1.3 billion in its coffers, meaning the company could make the acquisition using its own funds.
In January 2014, Gelman addressed the possibility of making a large acquisition. In a conference call with analysts, after the release of the company’s financial reports, Gelman was asked about the matter, and he said, “We have good experience with acquisitions, but we are very, very careful in choosing acquisitions that support our strategy. We are very active in the field, and a big acquisition is a matter of meeting all the requirements.”
On another occasion, Gelman said, “The beauty of our strategy is that we don’t need to make acquisitions, but we sometimes want to make one. For example, acquiring technology in order to accelerate our penetration of particular areas. Perhaps we will enter new areas.”
Acquiring Comverse’s billing division does not meet the criteria of entering a new area. It’s possible the rationale is expanding the activity to additional customers, and it’s possible that it is also an attempt to prevent competitors from strengthening by acquiring Comverse. Amdocs provides solutions and IT systems to communications companies, and is known primarily for its billing solutions. Rumors and speculations about a merger with Comverse (or part of it) have come up numerous times over the years. In contrast to the past, however, the financial situations of the two companies are very different.
While Amdocs continues to show signs of moderate growth in its revenue, and to generate cash and maintain profitability, Comverse has shown steady erosion in its two lines of business. Last week, Comverse released its 2014 financial reports, in which it reported a 16% drop in billing revenue, to $251 million. Comverse announced a new organizational plan last week, which includes layoffs (some of workers will be transferred to Tech Mahindra).
The Histadrut (General Federation of Labor in Israel), under which Comverse workers are unionized, declared a work dispute. However, the sale of the billing division would impact Comverse Israel employees in Israel less than those in the US. Comverse is managed by CEO Philippe Tartavull, and trades on the Nasdaq at a market cap of $477 million.
Published by Globes [online], Israel business news - www.globes-online.com - on April 21, 2015
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