Vista Equity Partners Proposes to Acquire SumTotal Systems, Inc. for $3.25 Per Share...

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Mon Apr 6, 2009 8:01am EDT

Vista Equity Partners Proposes to Acquire SumTotal Systems, Inc. for $3.25 Per
Share in Cash, a 62% Premium to April 3rd Closing Price & 109% Premium to the
Previous 30-Day Trading Period

-- Vista Is Nominating Three Directors For Election To SumTotal's Board of
Directors --


SAN FRANCISCO, April 6 /PRNewswire/ -- Vista Equity Partners Fund III, L.P.
("Vista"), a private equity firm focused exclusively on equity transactions
involving enterprise software businesses and technology-enabled solutions
companies, has proposed to acquire SumTotal Systems, Inc. ("SumTotal" or "the
Company") (Nasdaq: SUMT) for $3.25 per share in cash in a transaction that
values the Company's outstanding equity at approximately $103 million.  The
proposal represents a 62% premium to the closing market price of SumTotal's
Common Stock on April 3rd, and a premium of 103%, 109%, and 91% over the past
volume-weighted 20, 30, and 60-day trading periods, respectively.  Vista,
which owns approximately 13% of SumTotal's outstanding Common Stock, is the
Company's largest stockholder.

Vista also announced that it is nominating three directors for election to
SumTotal's Board of Directors at the Company's Annual Meeting of Stockholders
to be held on June 12, 2009 (including any adjournment, postponement,
continuation or rescheduling thereof).  The nominees are: Robert F. Smith,
John N. Staples III and Charles R. Whitchurch.  SumTotal's board consists of
eight directors.  Vista is seeking to replace the following directors: John W.
Cone, Donald E. Fowler and Ali R. Kutay. SumTotal is the market leader and a
global provider of talent development solutions.  Based in Mountain View,
California, SumTotal has offices across Asia, Australia, Europe and North
America.  Vista's offer was detailed in a letter from Robert F. Smith,
Managing Principal of Vista Equity Partners III, LLC, to Arun Chandra,
SumTotal's Chief Executive Officer, on April 3, 2009 (see full text of letter
below).

Mr. Smith said, "We have concluded, based on our exhaustive work and that of
our advisors, that the Company's ability to realize significant value for its
stockholders as a standalone public company during a lengthy and highly
precarious business model transition is, candidly, subject to significant risk
and uncertainty.  As a result, we believe that a compelling, high-premium,
all-cash offer is the most effective way to maximize value for all
stockholders."

Mr. Smith added, "We are confident SumTotal's stockholders will find that this
proposal reflects an exciting value for their shares, both in light of the
Company's current and recent trading history, as well as any realistic
assessment of the Company's standalone prospects, whether in the near or long
term.  As SumTotal's largest stockholder we took particular note that over the
past four quarters Wall Street research analysts following the Company have
been forced to revise their financial forecasts for the Company downward and,
more troubling, the Company stated in its fourth quarter 2008 earnings release
that it was unable to provide guidance for full year 2009 financial results."

Brief biographical background of Vista's nominees to the SumTotal board
follows:

Mr. Smith founded Vista Equity Partners in 2000, and during the last five
years, he has served as Managing Principal of Vista Equity Partners.  Prior to
founding Vista Equity Partners, Mr. Smith was the Co-Head of the Enterprise
Systems and Storage sector for Goldman, Sachs & Co.'s investment banking
division.  While at Goldman Sachs, he executed and advised on merger and
acquisition activity across a broad range of technology segments. Robert also
served as the business unit manager for Goldman's Mergers and Acquisitions
group.  Prior to Goldman, Robert worked in industry in various management and
technical management positions. He is the principal inventor on two United
States and two European patents.  Mr. Smith currently sits on a number of
software boards of directors including Reynolds & Reynolds, ADERANT,
SirsiDynix, Sunquest, Ventyx, and Zywave. He has previously been on the boards
of Applied Systems, Aspect Communications, SER Solutions, SourceNet Solutions,
and SRC Software. He is also a member of the Young President's Organization
and a Trustee of the Boys & Girls Club of San Francisco.  Mr. Smith received a
B.S. in Chemical Engineering from Cornell University and an MBA, with a
concentration in Finance and Marketing from Columbia Business School.

Mr.  Whitchurch has served on the board of SPSS, Inc., provider of predictive
analytic software since October 2003, and serves as chairman of the audit
committee.  He also serves on the boards of ScanSource, Inc., a distributor of
specialty technology products, and Landmark Aviation, a privately held company
in the general aviation industry.  From September 1991 through his retirement
in June 2008, Mr. Whitchurch served as the Chief Financial Officer and
Treasurer of Zebra Technologies Corporation, a manufacturer of bar code
printers and active RFID technology.  He holds a bachelors degree in economics
(Phi Beta Kappa) from Beloit College and an M.B.A. from Stanford University.

Mr. Staples is an attorney practicing in San Francisco, California, for
Evanston Partners, an investment advisory firm.  Since November 2007, Mr.
Staples has served as a director of infoGROUP Inc.  Mr. Staples is a former
director of Valley National Bank of Salinas, California, and of Household
Bank, FSB.  He is a graduate of Trinity College and Pepperdine University
School of Law.  Mr. Staples was a helicopter pilot in the United States Marine
Corps, serving in Vietnam in 1970-1971.  He is a retired Lieutenant Colonel in
the United States Air Force Reserves.


    Full text of Mr. Smith's letter to Mr. Chandra follows:

    April 3, 2009


    Mr. Arun Chandra
    Chief Executive Officer
    SumTotal Systems, Inc.
    1808 North Shoreline Boulevard
    Mountain View, California 94043


Dear Arun:

We appreciate your willingness over the past weeks to provide Vista Equity
Partners ("Vista") with the historical operating information we previously
requested.  As you know, we viewed this information as a very important aspect
to our ongoing review of the significant investment we have made in the
Company.  As the Company's largest stockholder, we have worked with our
advisors to continue to study carefully, among other things, the Company's
competitive position in the marketplace, its ongoing business model
transition, the experience of the management team in overseeing such a
transition, the overall impact of the difficult economic conditions on the
Company's prospects, and the valuation implications of these and other
factors.

We have concluded, based on our exhaustive work and that of our advisors, that
the Company's ability to realize significant value for its stockholders during
a lengthy and highly precarious business model transition as a standalone
public company is, candidly, subject to significant risk and uncertainty.  As
a result, we believe that a compelling, high premium, all cash offer is the
most effective way to maximize value for all stockholders, and we are prepared
to make such a proposal.

Accordingly, we are pleased to submit a proposal for the acquisition of the
Company in a merger pursuant to which your stockholders would receive $3.25 in
cash for each share of common stock.  We are confident your stockholders will
find that this proposal reflects an exciting value for their shares, both in
light of the Company's current and recent trading history, as well as any
realistic assessment of the Company's standalone prospects, whether in the
near or long term.  In reaching this conclusion, we considered many factors,
including but not limited to, the following:

    --  How has the Company performed?
        --  Since the closing of the Click2Learn / Docent merger, the Company
            has undergone multiple changes in both strategy and management.
        --  In the face of these strategy and management changes, and
            challenging economic conditions, Wall Street research analysts
            following the Company have been forced to revise their financial
            forecasts for the Company downward in each of the last four
quarters
            (including twice since our initial purchase of Company shares).
        --  Since the Click2Learn / Docent merger, the Company's share
            price has fallen by more than 75% (underperforming the NASDAQ by
            more than 50% over the same time period).
        --  At present, the Company is a sub-scale public company with
extremely
            limited trading liquidity (with average daily trading volume as a
            percentage of total float that is a fraction of that for other
            public software companies), making it very difficult, if not
            impossible, for shareholders to accumulate or exit significant
            positions without undue and disproportionate impact on the share
            price.
    --  Is the Company's latest strategy, a conversion to a Software as a
        Service (SaaS) model, assured or likely to succeed?
        --  History has shown the conversion to SaaS to be an extremely
            complicated and challenging process that is fraught with
            technological and business model risk.
        --  Even those who have succeeded have found the migration to be
            wrenching and value destructive along the way.
        --  Successful transitions have been rare, and few management teams
have
            the requisite experience to accomplish a successful transition.
    --  In the best case, can such a conversion be expected to be completed
        within an acceptable time frame for public investors?
        --  For full year 2008, the Company achieved only $8.75MM of on demand
            subscription revenues.
        --  Precedent would suggest that the Company is unlikely to realize
            significant operating leverage, and therefore profits, until
            reaching a critical mass of SaaS revenues, particularly taking
into
            account the costs associated with being a public company.
        --  As we shared with you in our prior discussions, very few public
            companies have ever successfully executed such a transition, and
            even those that have took 4-5 years to fully effect the
conversion. 
            Conversely, there are numerous examples, including many of the
            Company's competitors, of companies that have shown greater
            difficulty and have yet to deliver returns to their shareholders.
        --  Further complicating the transition, as well as the certainty of
            outlook, we think few would disagree that the economic environment
            in which Software companies globally are now forced to compete is
            one of unprecedented challenges.
        --  The Company's own Q4 2008 earnings press release, released in
            February of 2009, stated the following: "due to economic
            uncertainties, the Company is unable to provide guidance for the
            full year 2009."
    --  Taking into account the above factors, does the proposal represent a
        favorable outcome for shareholders?
        --  The proposal provides your stockholders with a 62% premium to the
            closing market price of the Company's common stock today and
            represents a premium of 103%, 109% and 91% over the past
            volume-weighted 20, 30 and 60 day trading periods, respectively.
        --  We believe that the proposal and the implied premium represent a
            very generous, risk-free sharing, today, of the upside we hope,
but
            are not guaranteed, to be able to achieve over the next several
            years.


        --  The proposal offers your stockholders full and immediate liquidity
            with no downside risk on the entirety of their existing positions
            (something that we believe would otherwise be very difficult or
            impossible to achieve, given the limited trading liquidity of the
            Company's stock).




Of course, our proposal is subject to the negotiation of a mutually
satisfactory definitive merger agreement, a draft of which we enclose, and the
completion by us of certain confirmatory due diligence (which we believe can
be completed in a matter of hours and concurrently with our negotiation of the
merger agreement).

We recognize that, in evaluating any proposal, there are other material terms
and conditions, in addition to price, that must be considered.  We have
anticipated these issues in our draft merger agreement and believe that we
have taken a very constructive approach by including provisions that address
any concerns regarding your Board's ability to fulfill its fiduciary duties or
regarding the certainty of a transaction closing.  For example, we provide in
our proposal a "go shop" right that, we believe, fully addresses any fiduciary
duty concerns that your Board may have.  In addition, our proposal does not
include a closing condition relating to the financing of the transaction, and
we have provided the Company with the ability to compel compliance with our
obligation to close.

Vista, a private equity firm with offices in San Francisco and Chicago, has
over $2.3 billion in equity capital under management.  Vista was founded in
2000 and is exclusively focused on equity transactions involving enterprise
software businesses and technology-enabled solutions companies.  Over the last
nine years, Vista has successfully demonstrated its ability to create value
through a disciplined investment focus on companies that offer
mission-critical software and technology-enabled solutions.  Since 2000, the
Vista team has invested over $1.4 billion in equity and completed over $7
billion in total transaction value.  Vista's financial and operational
abilities combined with its depth of experience in the software sector enable
Vista to complete diligence quickly and to provide a high degree of deal
certainty.  Vista is currently investing out of its latest fund $1.3 billion
Vista Equity Partners Fund III which closed in 2008.

As you know, we have the highest regard for your employees.  We have a history
of treating employees fairly and look forward to working with your team
following a closing.

As you can appreciate, with any proposal of this type, time is of the essence.
 Accordingly, we are standing by to meet with you and your advisors.  We would
be happy to meet with you, your Board of Directors, senior management and
advisors immediately to discuss our proposal and to answer any questions you
may have.  We are ready to move quickly to finalize a definitive agreement and
have prepared our proposal in a manner to do so.  As an example, we have
prepared the merger agreement in order to enable us to complete negotiations
over this weekend.

Obviously, many of the provisions we have included in our proposal, including
our fully valued price, are designed to permit both of us to comfortably move
to an agreement in a short period of time.

We trust that you and your Board of Directors will share our strongly held
view that our proposal clearly delivers tremendous value to your stockholders.
In sum, we are submitting a proposal with a compelling cash price, high
certainty of closing and broad flexibility for your Board.


    Sincerely,

       VISTA EQUITY PARTNERS III, LLC
       By:     /s/ Robert F. Smith
       Name:   Robert F. Smith
       Title:  Senior Managing Member

       cc:     Jack Acosta, Chairperson


VISTA STRONGLY ADVISES ALL STOCKHOLDERS OF THE ISSUER TO READ THE PROXY
STATEMENT AND THE DOCUMENTS RELATING TO THE SOLICITATION OF PROXIES BY OR ON
BEHALF OF VISTA FUND III IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION, INCLUDING INFORMATION RELATED TO THE
PARTICIPANTS IN ANY SUCH PROXY SOLICITATION. SUCH PROXY STATEMENT, IF AND WHEN
FILED, AND ANY OTHER RELEVANT DOCUMENTS WILL BE AVAILABLE AT NO CHARGE ON THE
SEC'S WEBSITE AT HTTP://WWW.SEC.GOV.

About Vista Equity Partners III, LLC

Vista, a private equity firm with offices in San Francisco and Chicago, has
over $2.3 billion in equity capital under management. Vista was founded in
2000 and is exclusively focused on equity transactions involving enterprise
software businesses and technology-enabled solutions companies. Over the last
nine years, Vista has successfully demonstrated its ability to create value
through a disciplined investment focus on companies that offer
mission-critical software and technology-enabled solutions. Since 2000, the
Vista team has invested over $1.4 billion in equity and completed over $7
billion in total transaction value. Vista's financial and operational
abilities combined with its depth of experience in the software sector enable
Vista to complete diligence quickly and to provide a high degree of deal
certainty. Vista is currently investing out of its latest fund, $1.3 billion
Vista Equity Partners Fund III, which closed in 2008.

Contacts

Diana Postemsky/ Jeffrey Taufield, Kekst and Company: 212-521-4800



SOURCE  Vista Equity Partners III, LLC

Diana Postemsky, or Jeffrey Taufield, both of Kekst and Company,
+1-212-521-4800, for Vista Equity Partners III, LLC
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