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Microsoft Spends a Cool $1.2b on Troubled Norwegian Search Firm

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Microsoft Spends a Cool $1.2b on Troubled Norwegian Search Firm

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Microsoft’s latest Google corrective has it buying Norway’s troubled publicly traded enterprise data search firm, Fast Search & Transfer ASA, for a lavish $1.2 billion in cash.

The buyout price represents a 42% premium over Fast’s stock price last Friday and 48 times estimated 2010 earnings. It will be one of Microsoft’s pricier acquisitions, demanding upwards of 5% of the loot in its treasury or three weeks worth of free cash flow to complete.

The deal is expected to close next quarter. Microsoft already has the unqualified backing of 37% of the company’s shareholders, including its two largest institutional investors representing 37% of the business, Orkla ASA and Hermes Focus Asset Management Europe. It needs 90% and should have no problem getting it given the number of skeletons rattling around in Fast’s closet.

Last year Fast, which got started in 1997 and now reportedly employs about 750 people, was discovered to have revenue recognition issues and collapsing license revenues.

Things turned sour for it in Q2 when revenues were sheered some 40% sequentially and there were reports of an investigation by Norway’s version of the SEC.

In Q3 it lost $100 million on revenues of $35.6 million, its turnover down almost 20% year-over-year. Revenues from enterprise licenses amounted to only $4 million and it had to write off $26 million in unpaid deals. It reportedly lost serious market share.

Fast said it would restructure and lay off 20% of its people to cut costs but just last month, when trading in its stock was suspended, it was expected to restate its 2006-2007 results yet again. Otherwise, revenues last year are supposed to total a flat $163 million.

Meanwhile, the antics of its board have provided an entertaining sideshow. Like two years ago when one of its directors bought an unprofitable operation and sold it to Fast three weeks later for a 2,000% gain.

Reportedly the Norwegian tax authorities want to talk to him and one of the company’s other directors about $50 million in unpaid taxes.

Under the circumstances, one can understand Fast CEO John Lervik’s description of the acquisition – or rather the exorbitant acquisition price – as “a dream come true.” Fast will now address a far larger market thanks to Microsoft.

Anyway, according to Microsoft, the acquisition should give it technologies to add to its Office SharePoint Server, another R&D footprint in Europe and a reportedly handsome client roster that includes companies like UPS, Reuters, Deutsche Telekom, Merrill Lynch and Factiva, the Dow Jones subsidiary, as well as Best Buy, Dell and IBM.

In Microsoft’s official announcement of the deal Jeff Raikes, the president of its Business Division, was quoted as saying, “Enterprise search is becoming an indispensable tool to businesses of all sizes, helping people find, use and share critical business information quickly. Until now organizations have been forced to choose between powerful high-end search technologies or more mainstream, infrastructure solutions. The combination of Microsoft and Fast gives customers a new choice: a single vendor with solutions that span the full range of customer needs.”

During a conference call Tuesday, Raikes claimed that Fast would make Microsoft the leader in end-to-end search. He described enterprise search as a “very different animal than Internet search” and a “hot, fast-growing area.” He expects it to become as ubiquitous as Internet search.

Using IDC numbers, he said, your average 1,000-man company wastes $5 million a year looking for stuff, and using somebody else’s projections claimed 70% of corporate data is inaccessible.

What Fast’s ESP platform brings to the party, he said, is high-volume scalability and the capability of searching billions of documents composed of either structured or unstructured data, a more sophisticated technology than Microsoft’s existing enterprise search or, say, IBM’s OmniFind or perhaps Google’s Search Appliance hardware-software combo.

Fast’s technology, however, is not all homegrown, but depends to a certain extent on widgetry borrowed from BBN, Oracle and Terragram. It’s architected as a service, though how exactly Microsoft might make use of that fact remains to be seen.

Raikes skirted past any discussion of Fast’s restructuring and organic growth, claiming that Fast had abandoned the search applications it had been toying with to refocus on its core platform, pushing itself in the direction the market is going. He made no mention of Fast starting to focus on ad serving and monetizing search rather than ESP.

Raikes claimed Microsoft has been watching the space “for some time” and looked at “a variety of companies,” emerging with the “best technology and best team” between its teeth. He evidently intends to keep Fast’s OEM arrangements in place like its archiving support for HP and EMC.

Raikes teased with the idea that Fast could provide Microsoft with a new search engine, putting off any clear statement of direction until after the regulators have their say about the acquisition.

See, Fast has been leading the development of PHAROS, the audiovisual search engine project funded by the European Commission to compete with Google.

Microsoft’s move to pick up Fast is expected to put the other enterprise search start-ups Autonomy and Endeca Technologies in play.

Separately, Chinese regulators have blocked Microsoft’s $13 million purchase of 1% of Sichuan Changhong Electric Company, a big Chinese TV and electronics maker. Microsoft agreed to the deal last spring for its digital media potential. The China Securities Regulatory Commission offered no reason for its decision.


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