Lernout & Hauspie swallows Dictaphone for $511m

Belgians buy US classic - including its $425m debt

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Dictaphone, founded by Alexander Graham Bell in 1888 and thought by many to have disappeared off the face of the map, has been bought by Belgian voice-recognition specialist Lernout & Hauspie (L&H) for 4.75 million shares, in a deal worth $511 million at last night's Nasdaq closing price. It was sold by Stonington Partners, a New York-based private investment fund that owned 99 per cent of the shares. They bought it from Pitney Bowes in 1995 for $450 million, so it hasn't been a great success for them, especially as they had to inject cash in 1998 to make it possible for Dictaphone to service its debt. L&H also gets to assume or refinance debt and obligations of some $425 million. The deal has cost L&H around 15 per cent of its current market capitalisation, which has quadrupled in the last few months. Stonington has agreed to retain two million L&H shares for at least two years and to assign its voting rights to Jo Lernout and Pol Hauspie. It had been known that Stonington had been looking for an exit strategy from its investment for some time. The deal is expected to close at the end of April. The synergy for the acquisition was that Dictaphone had hardly ventured out of the US - nearly 90 per cent of its sales were there - so L&H are expecting to gain from European and Asia/Pacific marketing. The debt burden had made it difficult for Dictaphone to get out of the analog dictation market, and despite deals with Philips and IBM for speech recognition, never made much progress in that market. The product lines of the two companies are complementary. Dictaphone is headquartered in Stratford, Connecticut, and CEO John Duerden (ex-Xerox and Reebok) will keep his job. L&H has acquired Dictaphone as it begins to trade in the black. L&H's main purpose in doing the acquisition was to get Dictaphone's medical dictation business - the company has 55 per cent of the US market, followed by Lanier's 35 per cent. Dictaphone's 1999 healthcare market revenue was $130 million, with 5000 medical industry customers and 400,000 medical practitioners using its kit. This will make L&H the number one in the US healthcare speech market. In the so-called 'communications recording' business - which sounds like fancy answering machines to us - Dictaphone had revenue of $100 million. It is intended to spin off separate legal entities for healthcare, telecoms, and internet translation. An important market that needs pioneering will be speech mining from voice databases, a field where the merged companies will be well-positioned to make progress. Will this mean SQL for speech, we wonder? ®

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