Something seems to have gone awry in the merger between Axent and Raptor. Two small but growing companies in the network management security business with promising and complementary product lines agree to merge, and both simultaneously take a beating on the stock market. So far it seems doubtful whether a single shareholder in either camp is amused by the way the stocks have reacted to the news. Raptor’s stock is down 23% since the deal was made public and Axent’s has dropped 27%. Some of the blame can be apportioned to the shakiness of technology stocks in general in the last month, demonstrated by the fall in the Nasdaq composite index which is down around 8% for December. And it’s possible that Axent/Raptor is just a symptom of this wider malaise. Beyond this, Raptor’s shareholders also have their own private agenda to grumble about. The merger gives them 0.8 shares in the newly merged Axent for each one of their own at a premium on the day of just $0.85 per share; an amount which most Raptor shareholders found a little on the thin side and a firm of lawyers has duly filed a lawsuit against Raptor claiming breach of fiduciary duty on the part of the directors. Raptor has dismissed the business as little more than an annoyance, and so far it isn’t even clear whether or not the lawyers have found a plaintiff. According to Axent’s chief financial officer, Bob Edwards, the lack of any premium is indicative of the equal partner status given to Raptor in the deal. This is more of a merger, says Roberts. In a buy-out the target looses control and gets paid to go away. Here we’re giving them three out of seven seats on the board. And his ideas are borne out by the structure of the deal. The 12.8 million shares issued by Axent will give Raptor’s stockholders 47% of the merged company. Yet on the day the deal went public, Axent’s stock price valued it at $35m more than its proposed spouse, and yet Axent has surrendered very nearly half of its ownership in the merged entity. They wanted more, we wanted less, but we’re comfortable with it, says Roberts. In terms of cost savings generated by the merger, there isn’t much to talk about. Salaries savings will come from the reduced numbers of directors, and there will be the normal cuts in administrative costs as two HQ’s are merged into one. On the sales side too, there is little overlap. Raptor sells 90% of its products through re-sellers while Axent has been 90% direct. This creates few chances for synergistic cost savings but plenty of scope for cross selling. It’s possible that the lack of cost savings and doubts about the compatibility of the two sales cultures have held the share price down. But it’s more likely to be two small stocks suffering together from the wider effects of selling in the technology sector. There is a slim chance that another company will be tempted to make a better offer for Raptor, encouraged by the mood of dissatisfaction amongst shareholders, but as far as Roberts is concerned, Raptor is tied into the deal too tightly for them to jump into bed with someone else.
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