Troubled TTP surges on Motorola offer
Friday 02 June 2006
The loss-making British mobile phone software developer TTP Communications has averted further financial turmoil by agreeing to a £103m takeover by the US giant Motorola.
Motorola has agreed to pay a significant premium to buy TTP in spite of its recent poor financial performance. TTP's sales fell 36 per cent to £37.2m in the year to 31 March, it announced yesterday, while recording a loss before tax of £27m compared to a £4m profit in the previous year. Its cash outflow of £20.7m contrasted with the £6.4m inflow the year before.
Dan Ridsdale of Bridgewell Securities advised investors to accept Motorola's 45p-a-share cash offer. It is worth more than three times the 13p closing price of TTP shares the day before the offer was announced.
Bruce Anderson, TTP's finance director, is confident the takeover will proceed, adding that a "leftfield" offer from another party would have to be significantly higher to be compelling.
Motorola, which unsuccessfully tried to buy the US operating system developer Palmsource last year, appears to attribute more value than the market to the Cambridge-based company's technology. Richard Windsor, an analyst at Nomura Securities, expects Motorola to use TTP's software as the platform for its low-end mobile phone range. He views TTP as a better acquisition for this purpose than Palmsource, and added that TTP will cost a third of the price.
Motorola pays TTP royalties to use its technology, so buying the supplier will potentially reduce its costs.
For TTP, the bid comes as a welcome relief after a disastrous year. In fiscal 2006, TTP spent 84 per cent of its sales on the research and development of products related to third-generation network technology and its AJAR applications platform. However, those products weren't rolled out during the year which exacerbated the effect of declining sales of handsets that use its older technology.
Mr Anderson said: "We were caught in the middle. That hindered our ability to do major deals. This takeover provides financial stability." He said TTP had already held talks with Cazenove, the investment bank, regarding a fundraising.
TTP shares leapt to 43.25p from 13p following the announcement of the offer.
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