Investors hit Vignette for plan to buy company

Tuesday, May 23rd 2000, 12:00 am

By: News On 6

Vignette Corp. said Monday that it will acquire a California software company that has critical technology for managing Internet content, but investors punished the Austin-based software maker over the news, driving down its stock price 20 percent.

Analysts expressed concerns that the $1.7 billion price tag for OnDisplay Inc. is too high.
Shares in Vignette, which provides underlying software for electronic commerce, fell $8.94 to $34.88, continuing a drop almost as dramatic as the run-up over the winter of the company's stock.

On March 10, shares in Vignette traded at over $100 a share, adjusting for a 3-for-1 stock split.
Technology stocks have been down in general on concerns their prices remain too high relative to revenue and projected earnings.
In particular, e-commerce infrastructure companies such as Vignette, which soared earlier this year on investor euphoria about the Internet, have been coming back to earth.

Under terms of the OnDisplay deal, Vignette will issue 1.58 shares for each share of OnDisplay, reflecting a 30 percent premium over the San Ramon, Calif.-based company's closing price on Friday. Shares in OnDisplay rose 88 cents Monday to $54.13.

"We question whether Vignette overpaid," Manuel Royo, an analyst at Southwest Securities in Dallas, wrote in a report issued Monday, noting that OnDisplay's revenue over the last 12 months was only $16.6 million.

But if the combination of the two companies' technologies creates an industry leader in the "business-to-business-to-consumer" value chain, he wrote, then Vignette paid a fair price.

Analysts said OnDisplay will offer Vignette technology earlier than it could be developed in-house. OnDisplay specializes in programs that use XML, a framework under which documents such as purchase orders can become more interchangeable.

Using XML, two companies can exchange documents and do business with one another, even if they use different software applications. XML effectively enables one system to translate what the other sends.

Another advantage of XML is that it allows information to be used in a variety of formats for different devices, including personal computers, interactive television or Web-enabled cellular phones.

"The acquisition of OnDisplay furthers Vignette's stated mission to provide the broadest and deepest application platform to support the needs of companies who are serious about building businesses online," Greg Peters, president and chief executive of Vignette, said in a written statement.

Vignette executives couldn't be reached for further comment.

The combined company will have 2,000 employees. Vignette said it expects the transaction to close during the third quarter.