Amdocs Management Ltd., a software and customer-care company largely operating in the telephone-company space, leapt into multichannel video last week with its announced acquisition of DST Innovis Inc. for $238 million in cash.
DST provides customer-care and billing services to DirecTV Inc., Comcast Corp. and Cablevision Systems Corp., among others. It posted $233 million in 2004 revenue and counts 37 million subscribers for its services worldwide, including about one-third of the U.S. cable market.
Amdocs said DST will operate as a separate Broadband Cable and Satellite division within the company.
NAULT STAYS ON
The new unit will be led by current DST CEO Peter Nault.
“This propels Amdocs into a leadership position,” Dov Baharav, the CEO of Amdocs Management Ltd., said. “This deal is all about growth.”
As cable and satellite companies look to add new services, including cable’s push into VoIP and potentially wireless telephony, Amdocs set its sights on that market.
“The industry is undergoing tremendous change,” Baharav said in an interview. “With the triple- and quad-play offering, this increases complexity of providing quality services. We want to take advantage of that growth.”
Nault added: “We see the opportunity to expand relationships with existing customers.” He said Amdocs has the skills and experience to “help our customers.”
Amdocs generated free cash flow of $70.4 million on revenue of $488.4 million in its first quarter, which ended March 31. It generates about $2 billion in revenue each year.
Baharav said DST’s margins are lower than those of Amdocs, but he believes DST can come in line with the parent company, after cost savings and new-services growth.
“We believe we should get to margins which are similar to what we see in the rest of company,” he said. “We will converge the two lines of business in the future. It’s a doable job. Both are service centered architectures, the same types of languages. Long term, we will have one product set.
“We’re going to insure uninterrupted service to current DST customers and we’ll be able to enhance Amdocs with the DST component,” he added.
Most of the cable and satellite deals are medium- to long-term contracts, Baharav said. “We intend to extend those later on. We don’t expect anything surprising in the near future.”
He said DST has strong relationships with MSOs. “We intend to take it forward and improve it.”
Nault said Amdocs will help DST serve its existing clients better. “We’ll be able to use Amdocs components to move more quickly as subscribers develop advanced services,” he said.
OUTPUT DEAL, TOO
Amdocs also said it signed a long-term agreement with DST Output to continue to support the printing and mailing of bills for the DST Innovis customer base. The agreement calls for DST Output to be a preferred vendor of billing print and mail for projects that combine those services with billing support.
The deal is a cash transaction, in which Amdocs acquired all of the common stock of DST. DST has about 700 employees, predominantly located in Sacramento, Calif., and Charlotte, N.C.
The transaction is expected to be neutral to earnings per share, excluding acquisition-related items. Amdocs said it may incur a one-time charge in its fourth fiscal quarter ending Sept. 30, 2005 to account for certain costs related to the acquisition.