Zvi Barenboim cancels Somoto acquisition

Zvi Barenboim photo: Aviv Hofi
Zvi Barenboim photo: Aviv Hofi

Somoto's current value is 40% of lower than the value at which it was traded when Barenboin agreed to acquire its activity for $50 million.

Israeli usinessman Zvi Barenboim has decided against acquiring the activity of software technology company Somoto (TASE: SMTO). The likely cancelation of the deal was revealed early last month by "Globes," due to distribution problems for Somoto's software in a Microsoft Windows operating system environment, which resulted in deterioration of Somoto's results and the collapse of its share price.

The cancelation announcement comes after the parties postponed completion of the deal a number of times. In its report to the Tel Aviv Stock Exchange, today, Somoto said that the $1.36 million given to the company by Barenboim as an advance on the deal "would be retained by the company as a penalty paid by the buyer for not completing the deal." Somoto added that the parties "are considering an alternative deal for the sale of some of its assets in the framework of a new plan."

Somoto's share price responded today to the news with a 9% jump, pushing its market cap up to NIS 100 million, 40% lower than the value at which it was traded last April, when Barenboim agreed to acquire its activity for up to $50 million (later reduced to $47 million, following a report of an expected decline in revenue). Somoto says that as of now, it has $23 million in cash, and $20 million net of bank credit.

Revenue is already affected by the software problem

Somoto engages in online marketing, video and mobile communications advertising, and the provision of distribution services for software and apps. Six weeks after inking the deal with Barenboim, Somoto announced that it had detected a pattern in which the anti-virus software in Microsoft's Windows operating system was removing its software from some PCs. For this reason, Somoto announced at the time that its revenue would in be 9% less than in 2018 and 16% less than in the first quarter of 2019. The company said that it was taking steps to find a technological solution that would minimize the effect on its revenue from the apps sector, and that it had begun distributing an initial technological solution.

Somoto has since failed to solve the problem, and reported $8.7 million in revenue in the third quarter of 2019, 39% less than in the corresponding quarter last year. The company posted a $351,000 third quarter net loss, compared with a $1.7 million profit in the third quarter of 2018.

Somoto, led by CEO Assi Itshayek, is a company with no controlling core. Among its shareholders are former CEO Ben Garrun, Yaacov Tenenboim, and Sol Tzvi. The company's chairman is Yehoshua (Shuky) Abramovich. Barenboim is one of Israel's most liquid businesspeople, with a record of many successful investments. In recent years, he has invested mainly in private medicine and technology, and holds shares in Somoto, which he acquired in August 2014, when the company was merged into Internet company Genieo Innovation, in which Barenboim had a holding.

Published by Globes, Israel business news - en.globes.co.il - on December 20, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Zvi Barenboim photo: Aviv Hofi
Zvi Barenboim photo: Aviv Hofi
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