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Phone.com in $6.8B merger
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August 9, 2000: 8:12 p.m. ET
Internet telecom rings up Software.com; Cisco exec Donald Listwin named CEO
By Staff Writer Michele Masterson
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NEW YORK (CNNfn) - Phone.com and Software.com, two software companies that enable mobile phone users to access the Internet, agreed Wednesday to merge in a $6.8 billion stock swap and recruited a top Cisco executive to lead the new entity.
 The companies, while small, are growing rapidly and represent the shift from connecting to the Internet from desktop PCs to doing so through wireless devices. As a sign of Wall Street's enthusiasm for the wireless Internet sector, the combined company will have a market capitalization of almost $14 billion, even though its combined revenue totaled only $147 million during the last 12 months.
At the same time the companies announced the union, Don Listwin, former Cisco executive vice president, was named as the company's president and CEO.
"At the stage we're reaching now, we will have combined revenues of over a quarter billion dollars and going to a half a billion next year. We believe he is one of the few people in the world, and the best, who can lead the growth of our company going forward," said Alain Rossman, Phone.com's chairman and former CEO.
 Investors applauded the union, sending both companies' stocks soaring Wednesday. Phone.com's shares gained 13-1/16 to 91-1/8, a gain of 17 percent. Software.com shares zoomed up 34-11/16, or 32 percent, to 142-7/16.
"In the last few quarters the market has exploded, and in the last three quarters we had growth of over 45 percent in every quarter, so what you have is a market that's on fire," Phone.com's Rossman told CNNfn.com in an interview.
Terms of the agreement call for shareholders of each company to own approximately 50 percent of the combined entity. Software.com shareholders will receive 1.61 Phone.com shares for each of their shares, valuing Software shares at $125.70 each, based on Tuesday's closing price.
In an interview on CNNfn's Moneyline, Listwin said that the combined company will be "platform independent," sending electronic messages to any mobile phone or appliance, possibly including kitchen appliances in the future. (75KB WAV)(75KB AIFF)
Listwin lauded
Several securities analysts praised Listwin and said he's a strong choice for to lead the new company. Listwin had been with the San Jose, Calif.-based Cisco for a decade and was its fourth-highest ranking executive. While at Cisco, he was responsible for developing Internet technology and services for telecommunications companies.
"I think it's a good deal, but the stock is up because of Listwin," said Peter Friedland, an analyst at WR Hambrecht.  "Here's a guy who was sort of in line to be the next CEO of Cisco, and now he's stepping away."
"There are still some bears out there for Phone.com, questioning whether the long-term viability of the business, so to have Listwin come and be CEO, that's a real strong endorsement of the future of Phone.com," Friedland said.
"I think he adds substantial credibility to the combination; it makes people very optimistic that he will build a significant and multibillion-dollar company over time," said Robertson Stephens analyst Marianne Wolk.
Betting on WAP
Phone.com's focus is on enabling mobile phone users to access consumer services over the Internet, such as checking sports scores, reading news stories, or buying a book. The company developed a supporting architecture called Wireless Applications Protocol, which adapts Web information to the smaller screens of wireless devices.
"Essentially Phone.com is like the Netscape of the Internet," said Mark McKechnie, an analyst at Banc of America Securities. In other words, Phone.com offers its WAP browser to other companies for free, similar to how Netscape offered its Web browser without charge to Net surfers.
Software.com is the leader in "carrier class" messaging, according to McKechnie, and offers e-mail solutions for the Internet, bringing in the communications piece to the new organization.
By bringing together two different pieces of the Internet wireless market, the two companies aim to offer a more robust line of software and services to phone companies and Internet service providers. And that offering should be well received. According to McKechnie, the Internet wireless market is estimated to grow from zero users in 1998 to 400 million users by the end of 2003.
Companies' background
The company will sell its services to a combined customer base of 140 major communications service providers, including AT&T (T: Research, Estimates), SprintPCS (PCS: Research, Estimates), Nextel Communications (NXTL: Research, Estimates), Verizon Wireless (VZ: Research, Estimates), British Telecom, Excite@Home (ATHM: Research, Estimates), and PSINet (PSIX: Research, Estimates). Out of the long list of clients, only eight overlap on both companies' lists.
In the 12-months ending June 30, Santa Barbara, Calif.-based Software.com reported revenue of $76.6 million and a net loss of $15 million. Based on Wednesday's stock price, the company has a market capitalization of $6.7 billion. In the same period, Redwood City, Calif.-based Phone.com reported revenue of $68.7 million and a loss of $22.8 million. Wednesday's gains bring the company's market capitalization to $7.2 billion.
Both Software.com and Phone.com made their market debuts in June 1999. Phone.com soared 151 percent in its first day of trading to close at 40-1/8, while Software.com offering was not as spectacular.
Other top executives of the new company include Rossman, tapped as executive vice president and chairman of the board, and John MacFarlane, named as executive vice president.
The merger has been unanimously approved by the boards of both companies and is expected to be accounted for as a pooling of interests. The transaction is expected to close by year-end. 
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