Sausage tie with Telstra is a good Solution

SYDNEY - Australia's top phone company, Telstra, will take a 40 per cent stake in the merged business of Sausage Software and Solution 6, splicing its internet commerce investments into a combined group with a market value of more than $A3.5 billion.

Sydney-based Solution 6, the biggest supplier of accountancy software in Australia, said it would exchange six of its shares for 10 Sausage shares, at a price of $A5.73 per Sausage share. That values the transaction at $A762 million.

Melbourne-based Sausage develops and sells software that helps small businesses provide online transaction services. Both companies believe that makes the merger a perfect fit. The market agreed, since Solution 6 shares rose 10.5 per cent to $A10.55 and Sausage rose 6 per cent to $A6.15.

"This deal pushes both companies ahead by 12 months to create a critical mass and Australia's largest electronic commerce business," said Sausage Software chief executive Wayne Bos.

"They have 3000 accountancy customers and we have the technology products to sell to them."

As part of the deal, Telstra will sell to Solution 6 $A237 million worth of its online commerce assets - including its econnect business and its online financial management service - for a further 16 per cent of the company, lifting its holding to 40 per cent. Telstra also has an option to increase its holding in Sausage to 40 per cent from 10 per cent. The head of Telstra's unit, Ted Pretty, will be made chairman of the combined group.

"Two companies that separately have led the Australian development of software products are combining to become the undisputed leader in the sector, Pretty said, adding that the new company would be its vehicle for expanding in the online financial services area.

"The transaction basically means Telstra will use Solution 6 for its internet expansion," said Tony Cianciolo, a Solution 6 executive. He believed the move would also clarify uncertainty about Telstra's internet strategy.

The Solution 6 and Sausage merger allows Telstra the ability to boost the equity value of its online commerce investments, by having them placed in a larger entity. Solution 6 is also planning an initial share sale on the US Nasdaq market later this year, giving Telstra exposure to US investors.

Solution 6 shares have fallen about 50 per cent since late December, when it reached a record $A18.35. Sausage Software is the best performing stock on the Australian Stock Exchange in the past year, rising more than 1000 per cent, while Solution 6 is the third-best performing stock, rising almost 300 per cent.

Broker Merrill Lynch expects Solution 6 to make a loss of $A7.2 million in the year to June 30, while the Sydney-based broker Burdett Buckeridge Young is forecasting Sausage will make a profit of $A8.3 million in the same period.