Pitney Bowes buying Lanham software firm

Group 1 is to remain based in Prince George's

deal valued at $382 million

April 14, 2004|By Paul Adams | Paul Adams,SUN STAFF

Lanham-based Group 1 Software has agreed to be purchased by Pitney Bowes Inc. in a deal worth about $382 million that will combine a cash-rich developer of mail-management software with the world's largest provider of mailing and shipping equipment.

Group 1, which has 600 employees worldwide, 215 of them in Maryland, will keep its headquarters in Lanham and be operated as a wholly owned subsidiary. Stamford, Conn.-based Pitney Bowes said it expects "a handful" of Group 1 employees to lose their jobs as a result of the transaction.

Pitney Bowes will pay $23 a share, a 39 percent premium over the value of Group 1's shares at the close of markets Monday.

Mark Funston, Group 1's chief financial officer, said Pitney will assume $58 million to $59 million of cash on the software company's balance sheet, which he said brings the effective cost of the acquisition down to about $324 million.

In a news release, Pitney Bowes valued the acquisition at about $321 million after factoring in the cash.

"This evolved, frankly, in the best way for an acquisition to evolve, in that it evolved over time out of partnership," said Funston, referring to a licensing agreement the two companies entered into three years ago. That relationship spawned the negotiations that led to yesterday's announcement.

Group 1 shares soared $6.19, or 37.5 percent, to close at $22.68 in trading yesterday. Pitney Bowes shares fell 13 cents to $42.87 per share.

Funston said most of Group 1's management will stay with the company and that the deal should prove beneficial to Maryland employees. He declined to specify which ones might lose their jobs as Pitney Bowes seeks to save $10 million a year in costs from the deal. The transaction is expected to close in the third quarter.

"They're buying us because they want to expand their software business, and they recognize that a software company is really its people," Funston said. "That's what they're paying $382 million for."

Founded in 1982, Group 1 counts Wal-Mart Stores Inc., American Express and L.L. Bean among its 3,000 customers. Its software helps clients manage print and electronic mailings to customers, including such things as monthly statements and sales materials.

The software checks mailing lists and addresses for duplicate or inaccurate data, reducing waste and errors. The Postal Service has been pushing companies to improve the quality of their data to reduce address errors.

Pitney Bowes said Group 1 will more than triple its revenue from software and help it expand rapidly into a growing market valued at $4 billion.

"Buying Group 1 was a better alternative than trying to build these capabilities ourselves," said Bruce Nolop, chief financial officer of Pitney Bowes.

Nolop said the company will incur about $15 million in acquisition-related costs over 18 months as the company integrates systems and pays severance to departing employees. The company said the deal won't alter its earnings forecast of $2.44 to $2.51 a share for the year.

"The timing is right, and the deal makes sense," said Jeffrey Van Rhee, an analyst who follows Group 1 for Craig-Hallum Capital Group in Minneapolis. "This gets Pitney what they want, which is going to be a business that's probably growing faster than its core business. It's a very cash-rich business."

Van Rhee said the field of data quality has gained attention in the past year, spawning a number of competitors to seek partners, as Group 1 has.

Analysts said Group 1's software will fit well with Pitney Bowes' business line.

"It's going to be the kind of thing that's going to give them a lot of synergies into some of the markets they had been sort of on the edge of," said Stephanie Crane, an equity analyst for Standard & Poor's in New York.

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