Baycorp merger on track despite claim

By DANIEL RIORDAN

Baycorp says its $1.9 billion merger with Data Advantage remains on track, despite the escalation of a legal claim against Baycorp's Australian partner.

The merger parties had factored the potential cost of the litigation into the pricing of the merger, said Baycorp managing director Keith McLaughlin.

"We were made aware of the litigation during the due diligence process. While we weren't given total details, that was factored into the exchange ratios that were determined."

He said he was reassured by Data Advantage's directors' statement that their maximum potential liability was $10 million - and the company believed that liability was not affected by the escalation in the claim's value.

"Directors don't come out lightly with those sorts of comments."

The plaintiff in the case is Killorgan Investments, a company associated with the former chief executive of Decision Advantage, Marcus Price. Killorgan filed its case in the Supreme Court of Victoria for breach of contract last September.

The action stems from Data Advantage's acquisition of software company Decision Advantage.

Initially, the claim was for $A27.5 million ($33 million), a figure that analysts said could lower their valuation of the merged company by 10c-12c a share.

Two weeks ago, Killorgan upped its claim to $A61.55 million plus interest and costs.

Data Advantage told the Australian Stock Exchange it considered it had "good grounds" for defending the claim, which it called excessive.

The company said other valuations of Decision suggested if its claim were successful, the amount of damages would be under $10 million, plus interest and costs.

Data has acknowledged it might have to pay two outstanding instalments of the purchase price for Decision and a further sum for an instalment already paid.

The amounts of these instalments would be based on Decision's valuations over each of the past three years.

The case has a provisional court date of October next year.

One New Zealand analyst, who asked not to be named, said the chances of the legal action succeeding were slim.

Mr McLaughlin said that the initial time-frame for the merger still held, and the parties were already effectively operating as a merged entity as they ironed out merger details.

"We're very pleased with the way that things are going. There is no issue on the table whatsoever. Both companies are working well together," he said.

Baycorp and Data Advantage shareholders meet separately in late November to ratify the merger and the deal is expected to be completed soon after that.

Baycorp's 5000 shareholders will take 58 per cent of the new company, Baycorp Advantage. The merged company will be dual-listed but have its primary listing on the Australian Stock Exchange.

Mr McLaughlin said Baycorp was staying focused on its core business amid economic uncertainty.

"Perhaps a weakening of consumer confidence could ultimately have a slight adverse impact on the number of consumer credit reports that go through, particularly in the retail sector. But that's to a degree offset by a tightening of the economy - if it does occur - which would put pressure on cashflows."

Baycorp shares have taken a battering in recent weeks, closing on Friday at $10.05, down almost $4 from the start of the month.

The shares have slumped 17 per cent since last week's terrorist attacks in the US. Data Advantage shares have fallen 17.9 per cent, from $A6.70 to $A5.50, over the same period, compared with the Australian market's 9.4 per cent decline.