Late last week, MAID announced that it has placed 54.5 million new ordinary shares at 220 pence per share in order to help fund its acquisition of Knight-Ridder Information (KRI). At the same time, it surprised investors with the announcement that sales of its Profound service were virtually flat in the third quarter.
The new shares, which will raise £119.9 million ($192 million), will realize under half the $420 million needed to fund the acquisition, with the remainder--plus an additional $44.5 million for associated re-organization costs--funded through debt. To this end, the company is also issuing $180 million of senior subordinated notes and has agreed to a senior banking facility of $92.5 million. In addition, it has arranged a revolving credit facility of $25 million.
With funding in place, and formal approval from both the U.K. and U.S. regulatory authorities, the final stage of the acquisition process will take place at an Extraordinary General Meeting of MAID shareholders, to be held November 10. Here the company will seek the necessary approval from its shareholders to proceed with the acquisition.
In a telephone interview yesterday, Dan Wagner, MAID's chief executive, said: "Essentially the deal has been done. Unless we have a shareholder revolt--which is highly unlikely--we will take ownership of Knight-Ridder Information on 10 November."
The slowdown in sales has been attributed to customers adopting a "wait-and-see" approach to the outcome of the acquisition. According to a company anouncement, "While early indications of September trading have suggested a strong recovery, the prolonged period of uncertainty caused by the impending acquisition resulted in deferrals of new client subscriptions and lower-than-anticipated usage growth due to deferred take-up of new products."
News of the sales slowdown has not, however, affected the funding, with analysts pointing out that so far this has affected just one quarter, and noting that MAID still expects to see growth of its Profound service running at 40 percent per annum.
Information Professionals and the Pricing Issue
News of the planned acquisition has been greeted less favorably by users than investors, with worried information professionals, in particular, posting messages to mailing lists complaining that they are receiving too little information about how the acquisition may affect the DIALOG, DataStar, and Profound online services.
There has also been widespread concern about future pricing. With MAID's charging structure based on an up-front annual subscription that in the U.S. ranges from $3,000 to $10,000, some KRI users are worried that they could face sharp cost increases if the same model is introduced to DIALOG and DataStar. This anxiety is at its greatest in Europe, where the entry-level cost for Profound is £6,000 [$9,600]. "I have a pay-as-you-go contract with Knight-Ridder Information and the last thing I would want is an annual up-front fee," Karen Blakeman, chair of the UK Online Users Group (UKOLUG), recently posted to the UKOLUG mailing list. "My usage is so unpredictable and certainly not worth £6,000. All in all, it is very unsatisfactory, as we are still in the dark as to the future of the services that we currently use."
Responding to these concerns, MAID's Wagner said that legal restrictions have limited what can be said until the acquisition is finalized. "We have been very tightly bound by U.S. regulations in particular as to what we can and can't say," he said. "Nevertheless, I have personally been answering all the questions that have been coming in on the Web site."
He also confirmed that users will not face any cost increases, adding, "In fact it is very possible that we may consider introducing more flexible pricing models for the Profound product."
The new company, to be called The Dialog Corporation, will be headed by Dan Wagner, and the current president of Knight-Ridder Information, Jeffery Galt, will join the board of the enlarged group.
With expectations that the merger of the two businesses will realize savings of at least $35 million on an annualized basis, rumors abound about possible job losses--a likelihood that Wagner does not dispute. "We will face a lot of duplication and doubling up of activities," he said. "So there are a lot of savings to be made and undoubtedly there will be some casualties. However, I'm not in a position to go into detail now. To do so would be potentially demoralizing."
Analysis and Comment
MAID's acquisition has been portrayed in the press as a "dream ticket" that, by marrying MAID's InfoSort technology in a blessed union with KRI's huge data warehouse, will create an online service for the next millennium. With the purchase looking now almost certain to succeed, MAID's most important next task will be to prove that it is a dream ticket that can deliver the goods to investors.
Interestingly, the one part of KRI that MAID did not buy was the PLS software business that was--prior to the Internet revolution--being touted as the next-generation search interface for DIALOG. "PLS is still owned by Knight-Ridder, Inc." said Wagner. "We didn't want that, as it is a business we are already in. We use InfoSort and Muscat [the U.K.-based search software company in which MAID owns a 70 percent stake]."
Many in the information industry are already asking skeptically what is so special about InfoSort technology that will overnight transform DIALOG and DataStar into the kind of high-value cash-generative businesses they have long aspired to become. It cannot be doubted that such questions will soon spread into the wider world, particularly if MAID is unable to deliver quick results.
Less discussed but perhaps more relevant is that MAID's highly aggressive and innovative approach to selling its service is unique in an industry that has consistently neglected its sales and marketing efforts. Above all, it is MAID's marketing skills that hold out hope of breathing new life into KRI. As Wagner said: "Knight-Ridder Information has a huge range of content and a new front-end for the end-user market. But they have only recently created a sales force. We, on the other hand, have a worldwide sales force, and we are very good at building new accounts."
With a newly acquired debt of $272.5 million, however, the enlarged group will have limited room to maneuver if the reported slowdown in sales proves not to be the result of deferred purchasing, but rather the start of a longer period of subdued growth.
One thing few dispute: If the deal does proceed, one of Europe's more flamboyant entrepreneurs will face the greatest challenge of his career.