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Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study 27

CyberSource to acquire Authorize.Net

Dear Colleague,

On Jun 18, 2007, CyberSource Corporation (NASDAQ: CYBS) announced the signing of a definitive agreement to acquire Authorize.Net Holdings, Inc. (NASDAQ: ANET), in a stock and cash transaction valued at approximately $565 million. Authorize.Net was formerly known as Lightbridge Inc.

Under the agreement, Authorize.Net shareholders will receive 1.1611 shares of CyberSource common stock for every share of Authorize.Net common stock. Additionally, shareholders will receive a pro-rata share of approximately $125 million in the form of a cash payment.

CYBS, with revenues of $76.79 million (ttm), is a provider of electronic payment and risk management solutions. ANET, has revenues of $98.52 million (ttm), is a provider of IP based payment solutions. The transaction, based on an Enterprise Value of approximately $347 million at the time of announcement, would be 3.52x revenue and 14.74x EBITDA. As of March 31, 2007, ANET reported $122.73 million in cash and no debt.

ANET’s stock price on the day of the announcement rose 8%, $16.73 to $18.03. A 52-week high was hit on June 20 with $19.01 per share. Since ANET’s share price is now tied to CYBS, it will move in lockstep as CYBS fluctuates. Generally, since the announcement, CYBS has moved between $12.01 and $12.98. During the same period, ANET reflected this with a margin between $17.88 and $19.01.

This transaction is expected to be accretive in the fourth quarter of 2007 on a non-GAAP basis, which excludes stock-based compensation expense, a reduction in the tax allowance, the non-cash portion of the tax provision, depreciation and amortization expense, and certain non-recurring charges and income.

With the pending acquisition by CyberSource, Authorize.Net stated that it will not proceed with its offer to buy Canada’s Payment Services Interactive Gateway Corp. It had an exclusive agreement to buy the company which expired on June 15, 2007. The deal was originally announced in April, for a maximum consideration of about $17.8 million Canadian (US$15.9 million).

The joining of these two businesses will allow CYBS to further capitalize on the growing web-based payment opportunity and enable it to provide payment solutions to all segments of the e-commerce industry.

CYBS, with approximately 20,000 customers, has traditionally focused on managing payments for mid-sized and enterprise customers. ANET, with over 175,000 customers, has specialized in small businesses. Collectively, the companies processed approximately 1.1 billion transactions in 2006, representing $65 billion of e-commerce.

"This is an investment in growth and scale," said Bill McKiernan, CyberSource chairman and CEO. "Each company has a strong brand, processing platform and team. This combination helps secure our leadership position, and gives us more resources to bring innovative payment solutions to our customers and partners. We believe this combination creates a unique global platform to allow us to better serve the industry and positions CyberSource to support new business opportunities as more payment types migrate to web-based platforms."

"We believe this transaction, in the years ahead, will enable us to provide even better support for our channel partners and customers," said Roy Banks, president, Authorize.Net Corp. "We expect this combination of resources to bring new and innovative payment solutions to market faster and more successfully than either company could independently."

Bill McKiernan will remain Chairman and CEO of the combined entity, Scott Cruickshank will remain President and COO of CyberSource, and Roy Banks will remain President of Authorize.Net.

Upon the close of the transaction, Robert Donahue, currently a member of the board of directors of Authorize.Net Holdings, Inc., will join the board of directors of CyberSource. In conjunction with the anticipated transaction, Scott Cruickshank, president and COO of CyberSource, has agreed to resign from the board of directors of CyberSource.

The agreement was approved by the boards of directors of both CyberSource and Authorize.Net. Subject to obtaining applicable shareholder approvals and satisfaction of all regulatory requirements, the transaction is expected to close in late September or early October 2007.

We hope that you find this feature from Sokoloff & Co. interesting, informative and useful.  We welcome your comments and suggestions.

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