ERG Announces Sale of Proton World
March 26, 2003–ERG Group of Australia (ERG) today announced it has finalised an agreement with micro-chip manufacturer STMicroelectronics (ST) for the sale of ERG’s 100% interest in Belgian-based Proton World (PW). Pursuant to the transaction, ST will grant ERG global rights to use the Proton technologies in ERG’s transit smart card systems for 20 years through a licence agreement. In addition, ERG will retain exclusive access to a short-list of nominated transit customers for a five-year term.
Under the terms of the agreement, ERG will sell all its shares in PW to ST for a consideration of approximately A$110 million (60 million). After settlement of all inter-company accounts and payments for the global rights to the Proton technology, ERG will receive cash proceeds of approximately A$60 million (37 million) at settlement. A milestone fee of approximately A$40.9 million (22.5 million) is payable to ERG on deferred terms tied to milestones over the next ten years. The milestones relate to the sale to ERG or its customers of smart cards that incorporate an ST chip.
Settlement of the transaction is expected during April.
PW develops and delivers high-security smart card technology. These technology products allow ERG’s transit ticketing smart cards to include additional applications such as payment and identification. Under ST ownership, PW will continue to develop these technologies to which ERG will have access for its own smart card projects by virtue of a global licence.
ERG Chief Executive, Peter Fogarty, said the transaction makes good commercial sense for all parties.
“For ERG the transaction results in ERG retaining global access to the Proton technologies for 20 years, and returns approximately A$60 million cash which can be redeployed to our core business. It also improves operating results by eliminating approximately A$15 million in annual goodwill amortisation charges and removing the need to fund Proton’s R&D,” he said.
“At the same time, once owned by ST, PW will have the resources to fast track further development of its technology and this, in turn, will more rapidly expand the multifunction nature of ERG’s smart cards under the global licence agreement.”
“ST is one of the world’s major chip producers. Its purchase of PW will mean it can combine development of advanced chips with software in smart cards to accelerate adoption of smart card technology.
“The sale is part of our strategy to bolster ERG’s balance sheet. As well, the transaction allows the two companies to establish a broader alliance and to collaborate on development of more advanced contactless smart card and chip technology.”
“ERG remains committed to Proton technology and will continue to work closely with ST and the former PW shareholders – American Express, Banksys, Interpay and Visa who remain large shareholders in ERG,” Mr. Fogarty said.
Regarding Proton, Mr. Fogarty said: “Proton is a powerful technology that still has capacity for further development, and one that relies on close cooperation with integrated circuit (chip) manufacturers. ST has been one of the major suppliers of ICs on cards used in ERG’s and PW’s card rollouts and will be able to drive and accelerate the further development of the Proton technology.”
Proton World Chief Executive, Dr Armand Linkens, said: “Being part of the ERG Group has proven that the multi-application strategy in which Proton World is engaged is the right one, with Proton deployments in Germany and United Kingdom that would not have been possible without the synergy with the transit sector. We are particularly pleased with the continuation of that strategic vision through the long-term licence with ERG. On the other hand, being part of an even larger company will allow us to tackle markets such as China and Japan that have previously been out of our reach and to remain at the forefront of technical developments in the field of multi-application smart cards with our Proton Prisma range of cards.”
The sale negotiations were announced on Thursday, 6 March 2003 in conjunction with ERG’s results for the half-year to 31 December 2002. In contemplation of the sale, ERG announced at that time it had made a provision in its half-year results of A$52.4 million compared with its book value as at 31 December 2002. This provision has been made before any milestone payments which will be brought to account as earned.