Another IT company drops acquisition plan

Another IT company drops acquisition plan
ENS ECONOMIC BUREAU

MUMBAI, OCT 2: If infotech companies made news earlier for `acquisitions', `joint ventures' and `mergers', the process has turned into the reverse gear with many of them increasingly breaking the so-called plans. Chennai-based Polaris Software is the latest to break the aquisition plan.

Polaris decision not to acquire Data Inc has taken a legal turn with the US-based company slapping a suit on the Indian company and its CMD Arun Jain for not complying with the agreement to buy it. The suit, filed in the US, also seeks reimbursement of all major expenses incurred by it relying on the `promise' made by Polaris, according to a statement made by Arun Verma, president, Data Inc.

Earlier this year, DSQ Software announced that it was shelving its plan to form a joint venture with Bank of America. ``Such announcements for takeovers or joint ventures seem to be aimed at boosting the share price. After the purpose is served, the deal is quietly called off,'' said an analyst.

Besides, a host of infotech companies had announced their plans to list their shares on Nasdaq. ``Even companies with poor management practices, corporate governance and accounting standards were `keen' to list their shares on Nasdaq. Now nothing is heard of them,'' analysts said.

Polaris Software on Saturday announced that it was calling off its Data Inc acquisition post-due diligence, as the deal `in its proposed form would not be in the best interest of Polaris' shareholders'. The two companies had signed a MoU on May this year, as per which Polaris Software would acquire the US company for a consideration of $21 million in a cash-stock deal.

Verma, in his statement, further said that his company was worth more than the purchase price originally agreed upon and had incurred major expenses in order to comply with the agreement apart from disclosing extensively confidential information to Polaris Software which could seriously compromise its competitive position if the deal is not completed.

He charged that the potential negative effect of the $15 million down payment may have on the present and potential investors of Polaris had derailed the deal and this had nothing to do with the Data Inc's value, performance or future prospects. He said that he was surprised that a company of Polaris stature was not aware of GAAP implication on down payment on its financial statement when the agreement was signed.

According to Verma, Data Inc had provided all information and took all actions required by Polaris and had even expressed willingness to revisit the terms of agreement within the broad parameters of the MoU. But Polaris put up `unreasonable and uncompromising' roadblocks to the compromise, he added.

Data Inc president Arun Verma in a statement in Bangalore said Polaris withdrew from the deal "unilaterally and without justification".

"In complying with all the terms and conditions of the agreement, we incurred major expenses and are additionally entitled to recover those costs, since it was Polaris' decision not to go forward", he said.

According to Verma, Polaris withdrew from the deal realising the negative effect of the $15 million downpayment on its financial position. "Mr Jain stated to me that the reason he was not going to close the deal was that the accounting for cash down payment might reflect poorly on Polaris financial statement," Verma added.