By Nicholas Mayes

Infobank Holdings Plc, the Langley, UK company at the center of bid rumors involving Microsoft Corp, is selling its software reseller business to a company director for 6.5m pounds ($10.5m), to concentrate its InTrade online procurement suite, a product that accounted for less than 1% of sales in the first six months. Infobank released a statement on Friday saying that it was in preliminary merger negotiations, generating speculation that it was about to sell to US e-procurement player Commerce One or Microsoft, which drove its share price up 13% or 150p to 1,330p.

Infobank said it would receive 3m pounds ($4.86m) cash, 2m pounds ($3.24m) in loan notes and a pre-completion dividend of 1.5m pounds ($2.43m) from the sale of its Software Corporation business to Ever 1129 Ltd, the management buyout vehicle of Infobank director Paul Ridley. Software Corporation resells mostly Microsoft desktop applications to large corporates and public sector organizations and combines the original Infobank software reselling business with that of Software Corporation Plc, acquired by Infobank in 1997 for 8.25m pounds ($13.4m).

Software Corporation made an operating loss of $32,000 on sales of $62.5m in the year ending December 31, 1998, which gives the deal a bid price/sales ratio of 0.16 – less than a tenth of full year 1998 sales. This is a bargain-basement price, even for a reseller struggling for profitability, but Software Corporation desperately needs a new lease of life.

In the first half of the year, it scraped an operating profit of $1.62m on sales of $41.8m, but in the acquisition statement Infobank says that the division’s performance in the second half of the year will not post a growth year-on-year because of the Y2K slowdown. Infobank did a similar MBO with its TrustMarque division in May this year.

Infobank plans to re-invest the money from the sale into marketing InTrade. InTrade has picked up several major accounts in the last few months, notably GEC, with whom it signed a $40.5m deal in November and its continued push into e-commerce has made its share price one of the best-performing on the AIM market. Only 12 months ago, Infobank shares languished at 44p. Yesterday’s price of 1342.5p represents a 30-fold increase in the last year. Infobank’s market cap of $841m values it at 13.4 times full-year 1998 sales.

This is a long way behind those of its US competitors. CommerceOne is currently valued at $6.95bn, which is almost 200 times forecast 1999 sales of $35m. Investors have been reluctant to give Infobank their full backing because of its strong presence in the pressurized world of product reselling, but its share price should continue on its upward path on the back of this news. Its shares rose a further 12p to 1342.5p on Monday morning, on news of the deal.

Admittedly, Infobank still has a lot to prove with InTrade, which made sales of just 21,000 pounds ($34,020) in the first half of the year and are forecast by analysts to reach just $1.5m for the full-year to December 2000. It remains a prime target for the large US e-procurement companies that are keen to gain an early foothold in the embryonic European market. But it is now one of the top five pure-play internet stocks in Europe in terms of market cap, behind ConSors Discount Broker, Intershop, Brokat Infosystems and Informatec, all of which are listed on the Frankfurt Neuer Markt.

Infobank is in a strong position for a dual listing on Nasdaq in the next two years following its drive into the US market earlier this month, through the $3.2m acquisition of internet services outfit Elliot Pearce Ltd. A Nasdaq listing would give it the size and profile to ramp up the marketing of InTrade in the more mature US market and take the company out of the reach of its acquisitive American peers. But if it has decided to sell, and rumored bidders include also SAP and JD Edwards, it should be able to fetch a healthy price.