Microsoft bids $1.2 billion for search firm Fast

OSLO/LAS VEGAS Tue Jan 8, 2008 4:30pm EST

1 of 4. Microsoft Chairman Bill Gates speaks at a keynote address at the Consumer Electronics Show (CES) in Las Vegas, January 6, 2008.

Credit: Reuters/Rick Wilking

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OSLO/LAS VEGAS (Reuters) - Microsoft Corp bid $1.2 billion to buy Norwegian business search software company Fast Search & Transfer in a deal focused on helping corporations manage and sift through their own files, a growing market also targeted by Google Inc.

The world's largest software maker offered to pay a 42 percent premium for Fast, the second-largest search provider that lets companies comb internal corporate documents, data and other information. Fast also sets up a search engine used by companies to help consumers navigate their Web site easier.

Fast said its board unanimously recommended that shareholders accept the Microsoft offer, which values the fully diluted equity of Fast at 6.6 billion Norwegian crowns, or about $1.2 billion. It has been viewed by industry analysts as a takeover candidate.

"The problem businesses have around the world is they generate lots of files and they don't know where they put them," said Kim Caughey, senior equity analyst at Fort Pitt Capital, which holds about 203,000 Microsoft shares.

"Microsoft has had desktop search for a while, but it really does need a more corporate approach to tracking and storing."

In recent years, larger technology industry players such as Google, International Business Machines Corp and Microsoft have started to move into the corporate, or enterprise, search market. This has led to flurry of acquisition activity.

The deal would spread Fast's search technologies more widely around the world, Fast Chief Executive John Lervik said. Fast posted a third-quarter loss of more than $100 million on revenue of nearly $36 million. Its clients include Dell Inc and Walt Disney Co.

Fast shares, which were suspended all day on Monday, jumped to the bid level of 19 crowns per share and then eased off to 18.80 crowns. The bid price is 42 percent higher than Fast's closing share price on January 4, the last day on which it traded.

Shareholders with 37 percent of Fast's stock, including its two biggest institutional investors -- Norway's Orkla and Hermes Focus Asset Management Europe -- have agreed to accept the offer, according to Microsoft and Fast.

The news pushed shares of Autonomy Corp Plc, a British rival of Fast, up 9 percent. Microsoft shares fell $1.17 cents to $33.44 on Nasdaq.

Google, the dominant player in Web search, aims to carry over its appeal with consumers into the corporate market. Its Google Search Appliance is taking aim at niche search companies such as Fast and Britain's Autonomy Corp Plc that have been viewed as possible takeover targets.

Research firm IDC said Autonomy ranks No. 1, and Fast No. 2, in enterprise search revenue.

"This industry has been consolidating for several years now," said Susan Feldman, an analyst at IDC. "Enterprise search is the missing piece in the software stack."

Feldman noted that smaller makers of software that allows companies to filter, search and analyze data, documents and information are being gobbled up by large software makers such as SAP AG, which is acquiring Business Objects SA.

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"There can always be another (rival offer), but I believe Microsoft will get it for 19 crowns a share," said analyst Erik Hjulstroem at Kaupthing Bank.

Standard & Poor's analyst Matthias Eriksson said: "I don't think there will be a competing bid. The premium is too high, so I think people will be glad to get 19 crowns."

The deal is subject to regulatory approval and acceptance from shareholders with more than 90 percent of Fast's shares, Fast said. Microsoft expects the transaction to be completed in the second quarter of 2008.

"We think (enterprise search) will be for workers what Internet search is for consumers today," said Microsoft Business division President Jeff Raikes on a conference call with reporters and analysts.

Raikes mentioned that Fast's enterprise search is a natural fit with Microsoft's collaboration software SharePoint, a fast-growing segment of the company's Office business.

Matthew Glotzbach, Google's director of product management at its Enterprise division, said Microsoft's move does not pressure it to acquire an independent enterprise search provider, because its business is growing fast.

Google estimated that its enterprise search business has a larger market share and more revenue than Fast, which countered that it does not view Google as a significant competitor for high-end customers.

Goldman Sachs is financial adviser to Microsoft and Merrill Lynch is advising Fast.

(Additional reporting by Joergen Frich in Oslo and Michele Gershberg in New York; editing by John Wallace, Andre Grenon, Richard Chang)

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