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Tdsoft Saves VocalTec

Ray Le Maistre
10/28/2005
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Israeli VOIP pioneer VocalTec Communications Ltd. (Nasdaq: VOCL) has been saved from the telecom scrapheap by its nextdoor neighbor, media gateway vendor Tdsoft Ltd. (See Tdsoft, VocalTec Merge.)

Talk of Tdsoft emerging as a white knight emerged last month after softswitch vendor VocalTec, which has been on the ropes for more than a year as its business fell away, received a delisting warning from Nasdaq. (See Late Reprieve for VocalTec?, VocalTec Receives Nasdaq Warning, VocalTec in End Game, and VOIP Pioneer Faces Meltdown .)

While Tdsoft is, in effect, taking over VocalTec, the deal involves Tdsoft becoming a fully owned subsidiary of the listed company. VocalTec is issuing new stock that it will exchange for all of Tdsoft's share capital, after which, Tdsoft's shareholders will own 75 percent of the new, combined company, and VocalTec's current shareholders 25 percent. In effect, that makes Tdsoft worth three times VocalTec's valuation.

The news sent VocalTec's share price soaring. Having closed Thursday at $0.41, which gave VocalTec a market capitalization of $5 million, it shot up this morning by 19 cents, more than 46 percent, to $0.60, giving the softswitch firm a valuation of $7.3 million.

That makes Tdsoft worth nearly $22 million, though the media gateway firm's VP of marketing and sales, Dan Ostroff, says VocalTec was worth more when the term sheet was signed in August. VocalTec's share price peaked at $0.68.

Once the merger is complete, which should happen early December, major Tdsoft stakeholders, (Nasdaq: CSCO) and Harbour Vest Partners LLC, will own about 36 percent and 20 percent, respectively, of the new company, while current VocalTec shareholder Deutsche Telekom AG (NYSE: DT) will own 3.8 percent.

Ostroff says the majority of VocalTec's staff, about 30 people, will be retained, "apart from a few in finance and administration." VocalTec's CEO Elon Ganor will "remain as a board director, but won't have an active role as an employee," while Joseph (Yosi) Albagli, Tdsoft's current CEO and president, will lead the new firm, which will have about 100 staff.

Tdsoft is believed to have annual revenues of about $20 million, while VocalTec is generating little more than $1 million in revenues per quarter at present. The VOIP equipment market is currently worth more than $600 million per quarter. (See VocalTec Reports Q2, Cuts Back and VOIP Equipment Revenue Up 18%.)

Ostroff reckons the merger will be relatively easy, as the two companies, which are based just 100 meters from each other, have similar corporate cultures and can benefit from a lot of technical synergies.

He also believes the combination of his company's media gateways with VocalTec's softswitch technology will lead to additional sales opportunities to VocalTec's carrier customers, including Deutsche Telekom and Romtelecom S.A., and a subsidiary of Telecom Italia SpA (NYSE: TI), among others. (See Spain's Nova Deploys VocalTec VOIP, TI Subsidiary Picks VocalTec VOIP, T-Systems Helps Hanoi With VOIP, and VocalTec Expands DT Deal.)

Then there are Tdsoft's channel partners, such as Lucent Technologies Inc. (NYSE: LU), Marconi Corp. plc (Nasdaq: MRCIY; London: MONI), NetCentrex SA, Siemens Communications Group, and Sonus Networks Inc. (Nasdaq: SONS), to pump. (See Tdsoft Joins Sonus Alliance and NetCentrex, TdSoft Team Up.)

But don't such partners have their own products that would compete with VocalTec's softswitch technology? Ostroff says not all of Tdsoft's partners have their own feature set technologies, adding that VocalTec has developed some nifty technology recently that is able to connect H.323 and SIP networks and then act as a SIP router.

"This is a unique opportunity for Tdsoft. We can benefit from VocalTec's carrier customer base and technology patents," says Ostroff.

VOIP sector analyst Jon Arnold, of J. Arnold and Associates, says that as both parties are small companies, "this is not going to change the market." He notes, though, that VocalTec has a good technical pedigree, a known brand, and carrier relationships, especially with Deutsche Telekom, that the Tdsoft team can exploit.

"It's possible that Tdsoft could use VocalTec's technology and expertise to develop its own gateway products into a much more intelligent edge device, and make it a much more powerful product," says Arnold. (See Tdsoft Launches VOIP Gateway.)

— Ray Le Maistre, International News Editor, Light Reading

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LightWarrior
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LightWarrior,
User Rank: Light Beer
12/5/2012 | 2:55:39 AM
re: Tdsoft Saves VocalTec
Sometimes you need to let sleeping dogs lie, or in the case of VocalTec, dead dogs die. TDsoft will find the software business a strategic landmine. It will alienate most of its current channel partners with their own softswitches and VoIP application servers. It will also force it into the HW/SW dual personality that only a much larger company like Siemens or Nortel can afford to converge. Also, H.323 to SIP is not that big a deal, and other companies like NetCentrex have excelled at doing this for 5 years. As they taught me in M&A 101 in business school "a rock tied to a feather will still sink."

Sad to see TDsoft making this big a mistake being that it is a well-run company with good people. But everyone can get eyes that are too big for their stomachs. The loss of the Israeli technology icon VocalTec must have been too much to bear. How else do you explain this deal?
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