Telelogic's Board Recommends Merger with IBM

The Board of Directors of Telelogic AB (publ) issued a statement in relation to the public offer from International Business Machines Corporation. Bo Dimert, Chairman of the Board of Telelogic, said: “After carefully evaluating the Offer and considering the future prospects of Telelogic, it is the Board’s opinion that the transaction is favourable to our shareholders. Therefore, the Board unanimously recommends this Offer. By combining with IBM, Telelogic will have a greater opportunity to accelerate its growth globally and be able to provide customers a more comprehensive solution for complex software development.”

Summary

  • Offer price of SEK 21 in cash per Telelogic share, which values the Offer at approximately SEK 5.2 billion.
  • The Offer represents a premium of approximately (i) 21 per cent to the closing share price on 31 May 2007, being the last day prior to market speculation regarding a potential acquisition of Telelogic; (ii) 25 per cent to the average closing share price for the last 20 trading days up to and including 31 May 2007; (iii) 39 per cent to the average closing share price for the last 60 trading days up to and including 31 May 2007; and (iv) 42 per cent to the average closing share price for the last 120 trading days up to and including 31 May 2007.
  • The Board of Directors of Telelogic unanimously recommends shareholders to accept the Offer. (Footnote 1)
  • A press conference will be held at Operaterrassen, in Stockholm, today at 13.00 (CET). Details are set out below.

Anders Lidbeck, President and CEO of Telelogic, said: “This transaction creates potential for offering our customers further support in developing and implementing complex systems across the globe. Our combined customer base will now be able to leverage a full powerful end-to-end set of products and services. For our employees, the transaction has potential to create new, interesting opportunities worldwide in a leading IT company.”

Background
This statement is issued by the Board of Directors of Telelogic AB (publ) (“Telelogic”) pursuant to section II.14 of the Stockholm Stock Exchange Takeover Rules.

Today, International Business Machines Corporation (“IBM”), through its indirect wholly-owned subsidiary Goldcup D 2933 AB (with a proposed change of name to Watchtower AB) (“Watchtower”), announced a public cash offer to the shareholders of Telelogic to acquire all outstanding shares of Telelogic (the “Offer”). Telelogic’s shareholders are offered SEK 21 in cash for each Telelogic share tendered.

Together, Telelogic and IBM will be able to expand and accelerate its customers’ ability to define, model, build, test, deliver and govern the development of complex systems with higher quality and faster time to market. Telelogic will also benefit from access to IBM’s worldwide sales and services organization.

After completion of the transaction, Telelogic will become part of IBM’s Rational Software unit.

IBM has stated that it believes that Telelogic’s employees, products and technology are, and will continue to be, very important for the continued successful development of the business. Furthermore, according to IBM, organic growth and acquisitions will continue to be an important part of the strategic development of Telelogic. The Board of Directors of Telelogic trusts that this description is accurate and has no different opinion.

For details regarding the Offer, please see today’s offer announcement from IBM.

Members of the Board of Directors of Telelogic holding shares in Telelogic have irrevocably undertaken to accept the Offer and tender all of their Telelogic shares into the Offer. Those board members hold in aggregate approximately 0.5 per cent of the issued and outstanding share capital and voting rights in Telelogic. The irrevocable undertakings would lapse in the event that a third party announces a public offer to acquire all outstanding shares in Telelogic at a price per share that is higher than the price per share under the Offer. However, if Watchtower announces a revised Offer and such revised Offer receives the Telelogic Board’s recommendation, the irrevocables would become binding again.

As set forth in IBM’s offer announcement, IBM has offered and will offer relevant key people at Telelogic to be part of a separate bonus plan, a so called retention arrangement, provided that the Offer is completed at an acceptance level above 50 per cent of all Telelogic shares on a fully diluted basis. In connection therewith such employees have been requested to accept certain no-compete and non-solicitation undertakings to IBM. The Swedish Securities Council has accepted this arrangement, subject among other things to the Telelogic Board’s prior approval. (Footnote 2) The Board has approved such an arrangement, provided that it be made conditional upon the Offer being completed at an acceptance level above 50 per cent of all Telelogic shares on a fully diluted basis. Further information on the retention arrangement will be set out in the offer document that will be drawn up and published by IBM for the purposes of the Offer.

Due diligence and offer agreement
At IBM’s request, the Board of Directors of Telelogic has permitted IBM to perform due diligence prior to the announcement of the Offer, since the Board of Directors judged that a public offer from IBM would be of interest for Telelogic’s shareholders to assess.

Telelogic and IBM have entered into an offer agreement, the content of which is summarized in IBM’s offer announcement. As set forth therein, Telelogic has agreed, subject to among other things approval from the Swedish Securities Council, to reimburse Watchtower for costs, fees and expenses incurred in connection with the Offer if Telelogic’s Board of Directors withdraws or adversely modifies its recommendation of the Offer and in the event of certain breaches of the agreement. The offer agreement will be disclosed in its entirety in the offer document that will be drawn up and published by IBM for the purposes of the Offer.

Employee stock options
The Board of Directors of Telelogic has agreed with IBM that the holders of Telelogic employee stock options are to be offered to waive their rights under these options in exchange for cash consideration, conditional upon the Offer being declared unconditional at an acceptance level above two-thirds of all Telelogic shares on a fully diluted basis. The employees concerned will be informed separately of the details of such offer.

The recommendation by the Board of Directors
The Board of Directors has based its recommendation on an evaluation of factors and considerations that the Board has deemed relevant in relation to the Offer. These include, but are not limited to, Telelogic’s current and estimated forward operating and financial performance in a highly competitive environment, Telelogic’s position in the consolidating software development industry, the commercial benefits of the proposed combination, other strategic alternatives available to Telelogic and its potential to make the necessary investments to increase its scale and generate enhanced shareholder value on a stand-alone basis. It is the opinion of the Board, based on the strategic plans and objectives set forth in the Offer, that a combination of the two companies would create a strong, competitive and stable global platform for the further development of Telelogic’s business.

Telelogic’s Board of Directors has been advised by financial and other advisers in its assessment of the Offer. The Board of Directors’ financial adviser is UBS Limited (“UBS Investment Bank”) and its legal adviser is Advokatfirman Vinge KB. UBS Investment Bank has issued a Fairness Opinion to the Board of Directors with the opinion that, subject to the qualifications and assumptions therein, the consideration offered is fair from a financial point of view. The Fairness Opinion will be disclosed in its entirety in the offer document that will be drawn up and published by IBM for the purposes of the Offer and should be read in full to understand the limitations set out therein. (Footnote 3)

Based on the above, the Board of Directors of Telelogic unanimously recommends the shareholders of Telelogic to accept the Offer. (Footnote 4)

This statement shall in all respects be governed by and construed in accordance with Swedish law. Any dispute arising out of or in connection with this statement shall be settled exclusively by Swedish courts.

Footnotes:
1. The President and CEO of Telelogic, Anders Lidbeck, has not participated in Telelogic’s Board of Directors’ deliberations and resolutions regarding the Offer and this recommendation.
2. Securities Council Statement 2007:15.
3. In its capacity as Telelogic’s financial adviser in connection with this transaction, UBS Investment Bank is entitled to receive a so called success fee in the event that an offer for Telelogic is completed.
4. Due to a potential conflict of interest – caused by the fact that he has entered into a retention arrangement with IBM and accepted certain no-compete and non-solicitation undertakings to IBM in connection therewith (see above and Securities Council Statement 2007:15) – Anders Lidbeck, who is also the President and CEO of Telelogic, has not participated in Telelogic’s Board of Directors’ deliberations and resolutions regarding the Offer and this recommendation.