Lernout & Hauspie Signs Definitive Agreement to Acquire Dictaphone Corporation - Company Business and Marketing

Edge: Work-Group Computing Report, March 13, 2000

Lernout & Hauspie (NASDAQ: LHSP, EASDAQ: LHSP) (L&H) announced Tuesday that it has signed a definitive agreement to acquire Dictaphone Corporation of Stratford Conn., a privately held leader in dictation and telephony call center recording systems and solutions.

The acquisition of Dictaphone will build L&H's product and management resources and its customer base in the medical dictation arena and the telecommunications market. The additional assets from the acquisition should immediately establish L&H as a leader in the healthcare medical records and information management industry, expedite the launch of a separate entity dedicated to healthcare solutions, and enhance and broaden L&H's offerings for telecommunications and data management.

The transaction calls for L&H to acquire all of the outstanding stock of Dictaphone for approximately 4.75 million shares of L&H Common Stock. Dictaphone is controlled by a fund managed by Stonington Partners, a New York private investment fund. Stonington has agreed to hold 2 million of the shares it will receive for a period of 2 years and has agreed to assign voting rights to these shares during this two year period to an entity controlled by Messrs. Lernout & Hauspie. In connection with this transaction, L&H will be required to assume or refinance approximately $425 million of Dictaphone debt and other obligations. The company plans to use the purchase method to account for this acquisition.

After the replacement of the debt, L&H expects the acquisition to to be accretive to its EPS (excluding goodwill). The acquisition is expected to close by approximately the end of April.

"Dictaphone had revenues of approximately $350 million for the fiscal year 1999, with EBIT of approximately $30 million. By combining the two companies we significantly add to L&H's revenue base while paying approximately 15% of our current market capitalization," stated Carl Dammekens, CFO of L&H.

Dictaphone has successfully transformed itself from a maker of stand-alone, analog recording equipment to a leader in digital dictation and call recording systems and solutions for the fast growth healthcare and telecommunications markets. Dictaphone's revenues in the past have come primarily from North America. L&H expects that going forward its own strength in Europe and Asia Pacific will help increase worldwide sales opportunities for Dictaphone solutions, and that the two companies will combine their assets to create products and services that address new market opportunities.

"As the leader in the medical dictation and patient record management market, Dictaphone Corporation gives L&H instant access to the resources to facilitate our launch of an entity dedicated to healthcare solutions. This should enable us to create an industry leading solution utilizing speech and web technology to reduce transcription costs enterprise wide and effectively manage patient information," said Gaston Bastiaens, president and CEO of L&H. "Dictaphone's call center recording and quality monitoring systems will complement L&H's existing focus on the telecommunications market and should enable us to leverage our data mining and information management technologies to create new solutions for this rapidly growing field."

"We believe that tremendous synergies will be realized by combining our two companies, particularly in technology and geographic market coverage," said John Duerden, chairman, chief executive officer and president of Dictaphone. "We both share a common vision -- that voice is changing our world, creating enormous opportunities to bring effective solutions to market. This acquisition is the logical next step for Dictaphone and its customers."

"Dictaphone's name and reputation in the voice business have made it synonymous with quality dictation products," said Amy Wohl, an industry analyst who began her career by following the vendor in the late 70's. "The tremendous synergy that the integration of Dictaphone's reputation, customer base, and physical infrastructure can have with L&H's knowledge of the Internet and advanced speech technologies is astounding. Together, they will be able to offer a range of products and technologies that will quickly move the voice industry to its next stages."

Separate Entities L&H has recently announced that it plans to create separate legal entities for its Telecommunications & Enterprise Solutions Group, Globalization and Internet Translation Group and Healthcare Solutions Group. With the acquisition of Dictaphone, it expects to form a powerful Healthcare Enterprise business group that has immediate access to Dictaphone's large customer base and the opportunity to integrate leading technologies from L&H in order to create new healthcare enterprise market solutions. At the same time, L&H is considering having this Healthcare unit set up a separate entity for Web-based healthcare market services.

Healthcare Market Strategy Furthered L&H's intended acquisition of Dictaphone will provide it with a wide range of assets with which to further its healthcare business strategies. Dictaphone's healthcare market assets include its 5,000 medical industry customers worldwide, its 100 sales representatives, its strong national network of technical service representatives, its experienced executive management team and its broad range of solutions for medical industry dictation and data management. Dictaphone is known worldwide for its medical record workflow systems and its transcription business -- in 1999 Dictaphone had healthcare market revenues of $130 million. Its market penetration is noteworthy: according to industry analysts as many as 400,000 physicians in the U.S. use Dictaphone to dictate 100,000 hours of dictation each day for clinical record processing.