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Lexmark Raises Bid to Acquire ReadSoft

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Following a counter-bid from Hyland Software, Lexmark International (LXK) increased its offer price for ReadSoft to $194 million. Lexmark originally offered $182 million to acquire the Swedish company which provides software solutions for business processes automation.

Moreover, the ReadSoft board and its two major shareholders are reportedly in favor of the revised offer. Nonetheless, any more counter-bids from interested parties could disrupt Lexmark’s proceedings. Post acquisition, ReadSoft is expected to be integrated into Lexmark’s Perceptive Software segment which has been strengthened with the acquisitions of PACSGEAR, Saperion and Brainware to name a few.

These acquisitions have not only expanded Lexmark’s product offerings but also supported its top line. In the last reported quarter (first-quarter 2014), higher license and subscription revenues helped the company post 38.0% year-over-year growth in the Perceptive Software segment.

Moving on, Lexmark’s interest in ReadSoft is of strategic importance as the acquisition will strengthen its position in the European business process management market. It is worth noting that reportedly, Gartner has recognized EMEA to be the second biggest content and process management software market. Moreover, with more than 12,000 customers in diversified sectors and operations in 71 countries, ReadSoft provides Lexmark the perfect footing to expand its business process solutions business. Additionally, the valued clientele including John Deere, BASF and HSBC Bank is another positive.

We see good growth prospects for Lexmark in the software sector although the company is trying to expand its hardware solutions business. However, the overall macro uncertainty could have an effect on product demand. Lexmark has a strong market position, but reduced demand for traditional printing hardware has affected pricing in the computer peripherals market.

Though constant pricing pressure from competitors such as Canon Inc., Xerox Corp. (XRX) and Hewlett-Packard Co. (HPQ), and a high debt burden are concerns, we expect Lexmark to come back strongly with its increasing focus on software and services.

Currently, Lexmark has a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is Micron Technology (MU), sporting a Zacks Rank #1 (Strong Buy).

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