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OpenText Goes Global with IXOS Buyout

Riding a wave of momentum sparked by interest from Wall Street over consolidation in the enterprise software industry, Open Text announced Tuesday its intent to purchase German content manager IXOS.

The stock buyout, for either $10.46 an IXOS share or .2610 of an Open Text share, comes at a time when many companies are looking at consolidation during tough economic times as a means to propel growth.

According to Open Text vice president David Glazer, the deal is valued in the range of $250 million.

This is the second acquisition announcement in a week for Open Text; on Tuesday, the company bought up a controlling 75 percent interest in outstanding shares of another German-based company -- Gauss Interprise. The deal is expected to close in November.

Tom Jenkins, Open Text CEO, said the enterprise content management software industry is finally gaining market awareness among businesses today, with many companies reaching $100 million in revenues each year. The recent wave of consolidations will spur even more growth, he said.

"Going forward, we see two or three companies generating more than a billion a year," he said in a conference call to investors Tuesday morning.

Open Text's romp through Germany's enterprise software industry is the precursor to a more entrenched worldwide reach based in both the U.S. and Germany. Both Gauss and IXOS will technically fall under an Open Text subsidiary, 2016090 Ontario Inc., though the two companies will be combined and act as European headquarters.

While the IXOS acquisition has been approved by board members on both sides, the deal still needs to go through regulatory approval and Open Text shareholders.

Shareholder concern is unlikely, however, for two reasons: Open Text also announced Tuesday a pending 2-for-1 share split to take effect Oct. 29. This comes a week after Merrill Lynch upgraded its stock to a Buy rating and a week after interest in the EMC announcement to purchase Documentum created Wall Street interest in business software companies. Open Text shares rose nearly $2 last week.

Consolidation is becoming something of a necessity these days for "best-of-breed" software providers to compete with the all-encompassing software solutions of companies like SAP and PeopleSoft .

What consolidation brings for Open Text, besides a German beach head in Europe, is a more robust enterprise content management software package for Open Text customers. IXOS brings to the table document/content management and archiving to round out Open Text's collaboration and business process solutions. Officials didn't go into any great detail over plans to integrate Open Text's LiveLink with IXOS' eCONtext and eCONserver software.

"By combining Open Text and IXOS, we can offer customers an ideal combination of technologies, solution flexibility and platform choice, all delivered from a single, financially stable company they can partner with for the long term," Jenkins said.

When the two companies were looking at their software pieces and seeing how the two would match up, Glazer said they were pleased by how well the two meshed.

"We're thrilled with how next to each other the two products are," he said. "LiveLink right from the beginning has been focused on the people-centric side of content management and connecting people to information.

"IXOS has really started at the exact opposite end of the ECM space and worked on all the aspects around long-term storage, archiving, archive management," Glazer continued. "From collaborations expertise we have on our end and the content management and archiving expertise they have, we think the two go together very smoothly."

In addition to its new European headquarters in Germany, Open Text has its operational headquarters to Chicago and corporate office in Waterloo, Ontario.

Officials couldn't predict whether jobs would be lost when the merger with IXOS is closed. IXOS has 900 employees, while Open Text has 1,200, though Jenkins did say the combined company would have more than 2,000 employees worldwide and 500 developers.