Sequoia Software firm sold for $184.6 million

Hot Md. company is being acquired by Citrix for cash

March 22, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

The day after the Super Bowl, executives of Sequoia Software Inc. traveled from Columbia to South Florida at the invitation of Citrix Systems Inc., which was entertaining licensees of its software products.

Seven weeks later, after a conversation that began at that event, the companies are more than friends: Citrix announced yesterday that it is buying the Maryland company for $184.6 million in cash.

Sequoia, which employs 240 people, will continue in Columbia under the name of its new parent, officials of both companies said.

Sequoia's shares climbed 53 cents, or nearly 11 percent, to close on the Nasdaq stock market yesterday at $5.53 - 11 cents less than the tender offer of $5.64 expected to be made next week.

Shares of Citrix, on the other hand, fell $2.13, or nearly 11 percent, to close at $17.69 on Nasdaq.

Wall Street analysts blamed the drop on the fact that Citrix now expects its earnings to shrink 5 cents to 7 cents a share this year because of the cost of acquiring Sequoia, which lost $20.5 million last year and $12.8 million in 1999.

Citrix and Sequoia officials, however, praised the $184.6-million deal as a way for both companies to be at the forefront of the "virtual work place."

Sequoia developed XML PortalServer software that gives Citrix's software greater compatibility with the Internet.

Citrix, based in Fort Lauderdale, Fla., has 1,460 employees. It reported net revenue for fiscal 2000 of $470 million, up 17 percent from $403 million in fiscal 1999.

Its net income for fiscal 2000 was $124 million, or 62 cents a share, excluding the amortization of intangible assets relating to business combinations and the write-down of technology. Earnings including the above mentioned items were $94.5 million, or 47 cents per share.

Citrix and Sequoia four months ago signed a licensing agreement to have Sequoia market and demonstrate Citrix Nfuse application portal software.

About that time, Sequoia executives were beginning their own internal discussions about the future of their company. They were concerned that financing was drying up in the technology sector. They felt vulnerable, even though the software maker was found to be the fastest growing of Maryland technology companies surveyed by Deloitte & Touche last year.

"The reason you do something like this now is that the capital markets are unforgiving to small companies that are ... losing money," said Richard C. Faint Jr., Sequoia's chairman and chief executive officer. "We had to get big quickly and that takes a robust stock price and lots of cash.

"In this market, a small, unprofitable company is going to have trouble getting that much cash. We said we should find a corporate partner. Their company was at the top of our list."

Sequoia President Mark A. Wesker, an attorney who began the company in 1992 with his brother-in-law, a software engineer, described the sale as "a great opportunity. It's very much a logical step."

Sequoia's founders took the company public 10 months ago, with the stock closing at $10.06 on its first day, May 12. The stock rose to nearly $22 in July, but dropped with the rest of the technology sector, dipping as low as $1.66 on Dec. 28.

About 80 percent of Sequoia stock is held inside the company, so it's a virtual certainty the deal will be approved, probably in the second quarter, Citrix Chief Financial Officer John P. Cunningham said in a morning conference call.

The acquisition already has been approved by both boards of directors and, subject to Securities and Exchange Commission consent, is expected to be completed during the second quarter.

"This relationship makes a lot of sense for us. We bought a team with a common set of goals. We are not a dot.com. We are a classic infrastructure software company," said Citrix President Mark B. Templeton, who was in Columbia for yesterday's announcement. "This is a case of 1 plus 1 equals 3"

Several analysts were less sure of the math.

Kama Krishna, an analyst with Ryan, Beck & Co. in New York, downgraded his recommendation on Citrix' stock from a "strong buy" to "buy" because of the short-term financial implications. Nevertheless, he still thinks the deal makes sense for the future of both companies.

"It's a win-win," Krishna said. "The smaller company gets to expand and its executives don't have to fuss with the [stock] market, which can consume half their time. For Citrix, it's a good way for them to grow with a new product line."

Emotions on Wall Street were also mixed on the fact the deal was for cash.

Benjamin Sim, who follows Sequoia for Wit SoundView in New Haven, Conn., said a deal for the equivalent of Citrix stock would have given Sequoia's investors a chance at a better return later.

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