Archive | December 11, 2007

Changing Fortunes

BT Group Buys Singapore IT firm Frontline for US$139 Million
by: Jerry Liao

BT and Frontline Technologies Corporation Limited (Frontline) announced that they have entered into an agreement for BT to acquire the entire issued share capital of Frontline (the “Acquisition”) for approximately S$202 million or US$139 million. Frontline provides IT consulting, infrastructure services, systems integration and IT outsourcing to local, regional and multinational customers. The company, which is listed on the main board of the Singapore Exchange, has operations in China, Hong Kong, India, Indonesia, Malaysia, Singapore, the Philippines, Taiwan and Thailand.

The Acquisition will be effected by way of a scheme of arrangement under the Singapore Companies Act and in accordance with the Singapore Code on Take-overs and Mergers (the “Share Scheme”). On completion of the Share Scheme, all issued Frontline shares will be transferred to BT for cash consideration of S$0.245 for each Frontline share (the “Scheme Price”). The Scheme Price represents a 33.9% premium to 1-month average share price. At the close of business on the day preceding the date Frontline’s shares were suspended from trading, Frontline’s market capitalisation was S$157 million. The completion of the Share Scheme is subject to the fulfilment of certain conditions precedent, including the approval of Frontline shareholders and the confirmation of the High Court of Singapore.

François Barrault, CEO BT Global Services, said: “This Acquisition will create one of the leading providers of networked IT solutions that will be able to offer a broader portfolio of solutions to local, regional and global customers. Frontline will bring to BT major new contracts in Asia and BT will be in a position to offer Frontline customers the full suite of BT products and services. Through this acquisition we reinforce our ability to provide high quality services to our customers wherever they do business. Frontline brings to BT approximately 5,000 highly skilled and professional people whose reputation for delivering complex solutions and network management services fits perfectly with BT’s strategy. We believe our combined reach and skills will create an unbeatable team in Asia Pacific as we seek to respond better to our customers’ challenges and opportunities.”

Frontline’s Executive Chairman and Founder, Steve Ting said “Since founding Frontline in 1993, we have strengthened our footprint throughout Asia Pacific and we are extremely proud of the company that we have created. Becoming part of BT can only accelerate our future growth and help to create a unique portfolio offering that will benefit our existing and future customers, firmly establishing us as one of the leaders in our space. This proposed transaction is great news for our customers, shareholders and employees.”

What’s so significant about this acquisition that I am giving it this much space? First, a couple of years back, Frontline had acquired control of Sun Microsystem Philippines. Second, the Philippine operation of BT is headed by Mr. Nilo Cruz. Cruz is the former Managing Director of HP Philippines.

Why do you think BT is buying Frontline? As BT had said, they want to expand their reach in Asia. So you can say that BT wants to increase the company’s customer base and secure a place in the growing business in Asia. Why did Frontline agreed to be acquired? First thing I can think of is “MONEY” of course. US$139 million is still US$139 million. A strong backing from BT and to complete their offering portfolio could be some of the reasons for the sellout. I am not sure how Frontline is performing as a company but according to reports – Frontline’s net income for the six months ended Sept. 30 rose 31 percent to S$4.6 million, while sales climbed 18 percent to S$110.6 million.

By now, I am sure parties involved are already saying that nothing will change. Everything will be the same, business as usual. We all know that this is not true. They simply want to soften the impact of whatever changes that will be implemented. Changes will come definitely – gradually perhaps.

So what would be the effect of this acquisition in the local scene? I can only speculate. There are a lot of possibilities. Prior to the BT acquisition, SunPhil is run by Frontline and Ms. Cynthia Mamon, President of IT Holdings Inc. (ITH). Now that BT acquired Frontline, I believe someone should go. I don’t think Frontline, ITH and BT will work together and run SunPhil.

ITH already got their money from Frontline, Frontline now is getting their money from BT. It’s BTs turn now to make money, and you can be sure they will do everything to make money. They will do everything to cut their cost, so BT may give up its Regus office and move to SunPhil office. A review of the current manpower in SunPhil will definitely be made. Performers will stay, non-performers will go. This will happen from the highest post to the lowest post. This is the painful reality of acquisitions and mergers.

Let me make a bold prediction here: BT will ask Mamon to stay and run SunPhil since she knows the in and out of the business. Cruz will supervise the operation of SunPhil since Cruz still has his primary role to play – run BT. Frontline will be asked to leave the Philippine operation. That’s PowerShift at work for you.

As they always say, there is nothing permanent in this world – only permanent interest.