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May 2001
Contract Announcement – Merrill
Lynch global contract
Introduction
royalblue group plc announces
today its strategic decision to focus purely on
its Fidessa business within the
financial sector, and therefore an intention to
divest its HelpDesk and rostrvm businesses. At
the same time, royalblue is pleased
to announce a major contract worth $25m (£17.5m)
with Merrill Lynch for supplying Fidessa
to its global equities trading business.
Fidessa contract with Merrill Lynch
royalblue announced today that
it has entered into a global agreement with Merrill
Lynch whereby Merrill Lynch will use royalblue’s
Fidessa product suite for trading
equities globally in Europe, Asia and the US.
The deal is worth $25m (£17.5m) and this
revenue is expected to be realised over a period
of 4 years.
Under the global agreement royalblue
will supply Merrill Lynch with Fidessa
software and consultancy services to support Merrill
Lynch’s global trading requirements in the
European, Japanese, Asia Pacific and US markets.
Initially the software will support order management,
trade management and market execution across approximately
20 different markets covering the principal liquidity
points across the world.
Merrill Lynch and royalblue
have also agreed to work closely to explore the
possibility of using royalblue’s
Fidessa product to provide software
to support Merrill Lynch’s US market making
requirements. Merrill Lynch is also exploring
this possibility with other vendors. If developed
with royalblue, this business
would provide royalblue with
a unique opportunity to deliver a US market making
system to support the largest player in the US
domestic market.
In recognition of this opportunity, royalblue
has agreed to grant Merrill Lynch options exercisable
for 1,500,000 ordinary shares in royalblue
conditional upon a definitive agreement between
the two parties pursuant to which royalblue
would supply a US domestic system to Merrill Lynch.
These options would become exercisable over a
period of 3 years and have an exercise price of
905p. The options would expire 5 years after their
vesting dates.
Focus on Fidessa
royalblue’s Fidessa
business within the financial sector now dominates
the Group’s results, representing 65% of
revenues in 2000. The business also contributed
90% of the Group’s profits in 2000. The
performance by royalblue financial
in 2000 reflects the strength of the competitive
positioning, high barriers to entry and the enormous
potential of the Fidessa product
set in the global equities markets, and the Board
believes that royalblue has a
compelling opportunity to build a substantial
and valuable world-leading business from this
foundation.
The royalblue technologies’
HelpDesk and rostrvm products have good positions
and prospects within their markets, but there
is no synergy with the royalblue
financial business. Furthermore, the growth rates
and profitability levels associated with Fidessa
are significantly greater than those currently
being achieved within royalblue
technologies. The Board therefore believes that
shareholder value would be enhanced by the proposed
divestment so that the Group’s resources
can be focused on the royalblue
financial business. Furthermore, the Board believes
that a singular focus on the financial markets
would also position royalblue
more clearly amongst the investment community.
The Board has therefore decided to focus royalblue’s
resources purely on its Fidessa
business, and intends to divest its royalblue
technologies HelpDesk and rostrvm businesses.
Proposed Divestment of royalblue technologies
HelpDesk and rostrvm businesses
royalblue therefore
also announces that it has signed a non-binding
agreement with a venture capital firm regarding
a proposed divestment of the royalblue
technologies HelpDesk and rostrvm businesses to
a management buy-out company involving the existing
management of royalblue technologies,
Graham Ridgway and Lee Chadwick. Due diligence
and other activities customary in a transaction
of this nature are currently underway.
The divestment and the terms are subject to contract
and confidential at this stage. If negotiations
are successfully concluded, the divestment is
expected to be announced within the next eight
weeks, and will be subject to approval of royalblue
shareholders at an EGM.
Outlook
As was announced at the time of royalblue’s
preliminary results, the royalblue
technologies HelpDesk and rostrvm businesses had
a challenging year in 2000. Revenues in 2001 in
royalblue technologies are ahead
of 2000 and broadly on plan, but higher than planned
sales and marketing costs have resulted in operating
losses in that business. The increased expenditure
in these areas is expected to yield profits in
the second half of 2001. However, the first half
profitability of the Group will be held back by
the operating losses in royalblue
technologies, although the Group will still be
comfortably profitable.
Should the divestment not proceed, the Board
still expects to achieve full year results for
the Group in line with market expectations due
to the strength of the royalblue
financial business, and the anticipated improvement
in performance in the second half from royalblue
technologies.
Most importantly, the Board expects that growth
in revenues and profits of royalblue
financial’s Fidessa business
(i.e. the continuing business of the Group if
the divestment proceeds) will be comfortably ahead
of last year’s comparable figures at both
the interim and full year stages.
The Board therefore believes that the outlook
for the Fidessa business remains
very positive, as evidenced by today’s announcement
of the $25m major contract with Merrill Lynch,
together with a strong order intake across the
business in the year to date.
For more information, contact:
royalblue:
John Hamer: +44 (1483) 206300
Andy Malpass: +44 (1483) 206300
Merrill Lynch
Jonathan Humphreys: +44 (20) 7996 423
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