The Hummingbird tradeoff

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Hummingbird Ltd., by agreeing to be acquired by Open Text, may have landed a superior deal financially, but is likely to lose its current identity, says one Canadian analyst.

Markham, Ont.-based Hummingbird, last week, accepted a US$489 million purchase offer made by Open Text Corp. of Waterloo, Ont.,

In doing so, the company retracted its acceptance of an earlier purchase bid by Symphony Technology Group LLC of Palo Alto, Calif.

“Hummingbird has less of a chance of maintaining its identity with Open Text,” said George Goodall, senior research analyst for Info-Tech Research Group of London, Ontario. “Expect key product changes within five to 10 years.”

Open Text’s purchase bid tops an earlier one made by Symphony, which in May announced its intention to buy Hummingbird for US$465 million.

At the time, Hummingbird had accepted Symphony offer and called the deal “definitive”.

That’s the same word the company is using to describe its current alliance with Open Text. (Breaking off the Symphony relationship cost Hummingbird a cancellation fee of $11.7 million).

Had the Symphony deal gone through, Goodall said, Hummingbird would have stayed essentially as it is today. He said the American firm would have allowed Hummingbird to operate as a standalone company.

“Open Text, on the other hand, will assimilate Hummingbird into its platform.”

A Hummingbird spokesperson said the deal with Open Text – also a maker of content management software – will be beneficial to the customers of the two Canadian firms.

“Open Text came forward with a far superior offer,” said Josh Pekarsky, president of Longview Communications Inc., the Vancouver-based public relations firm representing Hummingbird.

According to Info-Tech’s Goodall, it’s likely that Hummingbird shareholders had a lot to do with the company’s change of heart.

“Hummingbird took much flak from shareholders. When the Open Text offer surfaced, it must have appeared the [Hummingbird] board didn’t do its research,” he said.

“Ultimately it came down to financials from the shareholders’ perspective.”

Another Canadian analyst predicted a Hummingbird-Open Text merger would be a win for both firms, and the new company would be a force to reckon with.

“With this acquisition, you will have a Canadian firm that’s on equal footing with the big multi-national players,” said Joel Martin, vice-president of enterprise software at IDC Canada Ltd. in Toronto.

He said Hummingbird, through its earlier acquisition of RedDot Solutions AG of Oldenberg, Germany would bolster Open Text’s position in Europe.

Financial backing from Open Text, on the other hand, will strengthen Hummingbird’s stance against competitors such as Microsoft Corp. Oracle Corp. and EMC Documentum.

Martin said the deal would also benefit both companies’ customers, as there would be a rationalization of products offered by Hummingbird and Open Text.

Goodall, however, said the Open Text alliance does not bode well for Hummingbird’s units dealing with business intelligence and UNIX integration. “These two areas were not the company’s main focus. The units could be spun off or collapsed.”

He also predicted that redundancy of operations would trigger some layoffs within the next three years.

Martin said the deal points to an emerging acquisition trend within the industry.

In the content management software development, he said, vendors are constantly struggling to differentiate themselves, as well as find niche players to purchase in order to bolster their position.

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