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Many analysts are claiming the all-stock deal between the two companies, announced late on Monday night, makes sense because the two e-learning corporations provide different types of content in the e-learning products they provide.
Though it has the appearance of a struggling company, with shares currently trading at around one-quarter of their January level, SmartForce remains one of the world's biggest e-learning companies. Its e-learning products focus on IT skills and enterprise applications, as well as sales and CRM solutions. Meanwhile, SkillSoft's e-learning solutions are more focused on general business and professional skills, including management, leadership, communication, project management and customer service.
The combined entity will be the largest corporate e-learning company in the world, offering over 3,000 courses and 8,000 hours of courseware.
On a financial basis, the new Dublin-based company that will be 58 percent owned by SmartForce shareholders is expected to have revenues of approximately USD99 million for the year ending in January 2003 (using an assumed 30 September 2002 closing date). In that year, the company is expected to have a net loss before deal-related expenses and amortisation of USD0.06 per share. For fiscal 2004 the company is forecasting combined revenue of USD255 million and net income before amortisation of deal-related intangibles of approximately USD0.39 per share.
In fact for FY2004 the new company is only predicted to have USD6 million more in revenues, compared to SmartForce's 2001 annual revenue of USD261 million. But SmartForce has seen revenues slide steadily, with first quarter 2002 revenues of USD43.0 million, down from USD61.3 million in the same period a year earlier.
SkillSoft, which is 32 percent owned by Warburg Pincus, has only recently achieved its first quarter of profitability, earning USD926,000 in the fiscal quarter ended 31 January 2002 and net income of USD282,000 in its second quarter, on revenue of USD13.8 million. But in its filing for Q2, the company said it expects to continue to incur significant expenses, and significant revenues will be required to maintain profitability.
What's more, SkillSoft, along with three of its key employees and its largest shareholder, is fighting litigation with Netg, which alleges, among other things, misappropriation of trade secrets. This litigation, said SkillSoft in its most recent SEC filing, "will continue to be costly and may divert the efforts of our management and may ultimately restrict our ability to do business."
The company's legal expenses related to the defence of these lawsuits totalled approximately USD1.9 million in the fiscal year ended 31 January 2000, USD1.4 million in the fiscal year ended 31 January 2001 and USD1.7 million in the fiscal year ended 31 January 2002. "Moreover, these lawsuits may divert the efforts and attention of our management team from normal business operations," the company admitted.
National Education Training Group, Inc (NETg) is suing SkillSoft for USD810 million. Much of SkillSoft's management team, including chief executive officer and president Chuck Moran, consists of former NETg employees.
Possibility of Job Cuts
SmartForce employs around 1,480 globally, with over 400 of those workers based in Dublin. SkillSoft has 314 workers, mostly based in New Hampshire, with 40 employees in Belfast, and some analysts are predicting major cuts.
Speaking to ElectricNews.Net, Kate McCarthy, vice president of content development at SmartForce, said it was much too early to determine whether jobs would be cut, but she said it remained a possibility. "Between the two companies, we will be looking at how we can increase efficiencies... therefore, it is possible that there will be some duplications," she said.
"I think over the next six to nine months there's going to be a pretty big rationalisation period," explained Gerry Hennigan, technology analyst with Goodbody Stockbrokers in Dublin. "Based on the figures they have provided, it looks like their activity through the end of the year is going to be almost entirely cost driven."
Hennigan, who said the merger appeared to be a positive move for SmartForce, claimed that the revenue forecast for 2004 from the new merged company was a reachable target but was dependent on an improvement in the market for e-learning products.
The combined company, though headquartered in Dublin, will be headed by SkillSoft president and chief executive officer Chuck Moran, who will have the same title in his new position. Greg Priest, chairman and chief executive officer of SmartForce, will be chairman and chief strategy officer of the merged company. Tom McDonald, chief financial officer of SkillSoft, will also hold the same position at the merged company.
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