Baltimore Technologies' share price rocketed yesterday following news it had acquired US company, CyberTrust Solutions. The move now positions Baltimore as the third-largest encryption security company in the US.
When the markets opened Baltimore's share price on the London exchange shot up from £54.70 sterling (€88.14) to close at £67.50, a 23 per cent gain on the day, hitting a high of £70.50 at one point.
In the US, Martin Luther King day meant shares were not trading. When the Nasdaq opens this morning, Baltimore is expected to reflect yesterday's London gains, and break the $100 barrier to trade at around $115.
A strategically important acquisition for Baltimore, CyberTrust, a subsidiary of GTE, was acquired for $150 million worth of Baltimore shares.
The net cost of the deal will rise when the planned additional issuance of around 1.4 million share options for the benefit of CyberTrust employees is taken into account. This is to bring CyberTrust employees into line with the rest of the group.
Viewed as a modest price tag in Internet terms, sources close to the deal indicated there were a number of bidders for CyberTrust, and Baltimore's was not the highest bid. However it is understood the overall strategy outlined by Baltimore for the merged entity proved more attractive for CyberTrust.
The number of shares to be issued to CyberTrust will be determined on the basis of a 10-day average closing share price prior to closure of the transaction in mid-March. Under this arrangement CyberTrust loses out on the share price gains made following the deal's announcement.
It will now receive around 1.3 million shares, instead of 1.7 million if the sale had been agreed at the price prior to the deal's announcement. The arrangement is likely to please existing Baltimore shareholders who suffer little share dilution as a result of the deal.
CyberTrust strengthens Baltimore's position in the US by providing more immediate access to the US market. It adds 180 people to Baltimore's existing US presence of 50. CyberTrust is also estimated to hold a 15 per cent share of the Public Key Infrastructure (PKI) security market, giving Baltimore an overall 20 per cent share.
The deal adds a number of key blue chip customers to the Baltimore client base, including American Express, Mastercard, and Deutsche Telecom. This is likely to further boost Baltimore's sales and marketing effort in the US.
The acquisition also brings Baltimore into a new PKI security market - facilities hosting. Until now Baltimore has only sold products to customers who then manage them entirely in-house; now it has acquired three facilities in the US and Japan which allow it remotely manage security products for its clients. To establish one hosting facility requires a massive capital investment of around $10 million.
According to Mr Fran Rooney, Baltimore chief executive officer: "Hosting facilities requires a Fort Knox type investment, and would have taken between six and nine months to build. Through this deal we get a strong customer base, including the Hong Kong post office, and with GTE being acquired by Bell Atlantic, we feel we can exploit that going forward."
Now Baltimore is looking to expand its acquisition strategy and Mr Rooney says it plans to move into some non-core markets this year which offer greater access to a customer base on a sectoral basis. It is also looking very closely at developments in mobile technology having recently launched its Baltimore Telepathy suite of wireless security products.
