Open Text buying GXS Group in cash-and-stock deal valued at about $1.17 billion

NEW YORK, N.Y. – The software company Open Text (TSX:OTC) will spend approximately $1.17 billion to acquire cloud-technology provider GXS Group in a cash-and-stock deal that appeared to wow investors but prompted Moody’s to warn of a possible downgrade.

Open Text, based in Waterloo, Ont., will pay about $1.07 billion in cash and $100 million of its stock. When the deal closes, part of the cash portion of the purchase price will be used to repay some GXS debt, company officials said Tuesday.

GXS stockholders are expected to own about 2.1 per cent to 2.4 per cent of Open Text’s stock once the acquisition is complete.

The companies will have about 80,000 customers combined once the transaction closes.

GXS Group Inc., a business-to-business service provider, will become a subsidiary of Open Text Corp.

Open Text anticipates the transaction adding to its adjusted earnings in fiscal 2014 and plans to finance the cash part of the acquisition with available cash and proceeds from a new credit facility. Open Text has committed bank financing of up to $800 million from Barclays and RBC Capital.

The deal is expected to close within 90 days, during Open Text’s fiscal third quarter.

On the Toronto Stock Exchange, Open Text stock soared $7.77, or 10 per cent, to $85.32 on heavy volume of more than one million shares.

Howver, Moody’s ratings service said after markets closed that it had placed Open Text’s ratings, including its Ba1 corporate family rating, under review for downgrade.

“The review was prompted by the company’s recent announcement of the partially debt financed acquisition of GXS Group, Inc. and the relative scale of the acquisition relative to Open Text,” Moody’s said in an emailed statement.

“Though Open Text’s Ba1 corporate family rating accommodates a certain amount of debt financed acquisitions, the GXS transaction is larger than originally contemplated in the rating,” it said.

Moody’s said the ratings could be confirmed at Ba1 or downgraded, but that any downgrade would likely be limited to one notch.