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Jda Software Group (JDAS), the provider of enterprise software solutions, announced on Thursday that it will merge with RedPrairie. Under terms of the deal, RedPrairie will acquire all outstanding shares for $45 in cash. Shares of Jda rose almost 31% over the past week.

The Deal

Jda Software announced that it will be taken private by privately-held RedPrairie. Under the terms of the merger agreement, RedPrairie will pay $45 in cash for Jda. This values the firm at roughly $1.9 billion. The deal represents a 33% premium compared to the stock price before rumors surfaced the market that Jda was contemplating a possible sale of the company.

The deal creates a strong combination to address the increased complexity which manufacturers and retailers face in today's business world. Planning and execution is becoming more important, and Jda's market-leading supply chain solutions are a great strategic fit with RedPrairie's focus on warehousing and workforce management.

CEO Hamish Brewer commented on the deal,

This transaction generates tremendous value for JDA shareholders, offering them a meaningful premium for their shares. This is a strong combination of two leading companies with highly complementary product suites. It will give business the power to better manage global commerce through a new world of capabilities. The combined company will have a unique ability to address our customer's increasingly complex needs with a full spectrum of solutions for planning and execution across the entire value chain.

Jda reported $691 million in annual revenues for 2011. The company reported a net profit of $82.7 million for the year.

Jda ended its third quarter of 2012 with $408 million in cash and equivalents and it operates with $274 million in total debt. This leaves Jda with a net cash position of roughly $134 million, valuing operating assets at $1.8 billion.

The deal values Jda's operating assets at 2.6 times 2011s annual revenues and 21-22 times annual earnings.

The companies did not specify any cost or revenue synergy targets as a result of the deal.

The transaction has already been approved by the board of directors of Jda. The deal is subject to customary closing conditions, including regulatory clearances and a tender of 79% of Jda's outstanding shares.

Valuation

Jda Software ended its third quarter of 2012 with $408 million in cash and equivalents. The company operates with a net cash position of $134 million as mentioned above.

For the first nine months of 2012, Jda Software generated $495.5 million in total revenues, down 4% on the year. Net profits fell to $26.3 million for the period, down two thirds on the year. Full year revenues could come in at $650 million and profits around $25-$30 million.

The deal which values Jda Software at $1.8 billion for its operating assets seems a good deal for shareholders. Based on expected full year 2012s annual results, this values the firm at 2.8 times revenues and roughly 65 times annual earnings.

Jda Software currently does not pay a dividend.

Investment Thesis

Year to date, shares of Jda Software have risen 38%. Shares fell from $33 in January to lows of $25 in the spring after the company issued a weak guidance. Shares steadily recovered to $34 in recent weeks, before rumors hit the markets that the company was up for sale. Shares jumped from $34 to $38 on Wednesday on takeover rumors and hit $45 per share on Thursday after the news broke out.

Over the past five years, shares of Jda Software rose 80%. The takeover sends shares to fresh all time highs, in a time when operating performance is deteriorating. The company grew annual revenues from $390 million in 2008 to $691 million in 2011, before falling back this year. Earnings rose from a mere $3 million in 2008 to a record $83 million in 2011, before falling back this year.

The $45 cash offer seems to be a done deal, and a perfect profitable exit opportunity for Jda Software's shareholders. With revenues under pressure and margins on the decline, a take-out at all time highs seems a great deal. Fortunate shareholders should be glad and tender their shares.

Source: Jda Software: RedPrairie Offer Is An Excellent Exit Opportunity