Aladdin & Vector Capital, Another Questionable Deal (ALDN, CREL, CAPA)

Aladdin Knowledge Systems (NASDAQ: ALDN) has confirmed that it received a confidential and unsolicited proposal from private equity firm Vector Capital to acquire the company.  The company notes that Vector’s proposal includes a potential alternative transaction with Vector’s purchase of Aladdin’s DRM business…. "potentially combined with a repurchase by Aladdin of the shares of Aladdin purchased by Vector Capital, and the sale by SafeNet, Inc., a Vector affiliate, of its authentication business to Aladdin."  What is very interesting is that while this would be a small deal, you can see below how this deal will come under question by many just as fast as it was announced.

Vector Capital’s SafeNet is a direct competitor of Aladdin.  Aladdinsaid its Board of Directors is reviewing the proposal in consultationwith independent advisors and will inform Aladdin’s stockholders of itsposition.

The company also said it is committed to enhancing shareholder valueand is continuing to implement its strategic plan.  It noted thisincludes organic growth as well as complementary acquisitions, two ofwhich were announced this past month to strengthen its portfolio of ITsecurity offerings and increase our global brand recognition.  CreditSuisse is serving as financial advisors to Aladdin, while Kramer LevinNaftalis & Frankel LLP is serving as U.S. legal counsel; andHerzog, Fox & Ne’eman is serving as Israeli counsel to Aladdin.

The company has not said at what price the offer came in at nor givenany hint of what the alternative transaction terms would be.  Shareswere halted ta $11.53 before being halted, and the 52-week tradingrange is $8.29 to $26.94.  Its market cap based upon the halt price is$160 million.

If Vector Capital sounds familiar, it is the same one who recently wasinvolved with the Corel (NASDAQ: CREL) acquisition which was just called off.  We’d also note that Vector Capital had also attempted toacquire Captaris, Inc. (NASDAQ: CAPA), which also didn’t go through. 

Whether or not this occurs is subject to what the companies and holders decide, so we don’t want to imply that this cannot happen.  Just keep in mind that an initial offer with unknown terms isn’t an a sure bet.

JON C. OGG
August 20, 2008