Documentum to buy collaboration company

Documentum Inc., a provider of enterprise content management software, announced Thursday that it plans to acquire eRoom Technology Inc., which makes products that allow teams of workers to collaborate on projects over the Internet.

The companies said they plan to bring new software to market over the next quarter that will combine capabilities of products from both vendors. Documentum will retain its name and make use of the eRoom brand.

The stock and cash transaction is valued at about US$120 million based on current stock values, said David Milam, Documentum's chief marketing officer. The deal is expected to close in December, subject to customary closing conditions.

Documentum also said Thursday that it expects to report earnings for its third fiscal quarter of $0.03 to $0.04 per share, which would be at the high end of its earlier forecasts. Revenue is also likely to be higher than expected, coming in at $55 million to $56 million, the company said. Analysts had been expecting $54.6 million, according to a consensus compiled by First Call/Thomson Financial.

Documentum's software is used for managing all types of content, from its creation through delivery to archiving. In July it said it planned to launch a new product with so-called "ad hoc collaboration" features. These will allow teams of workers to come together in chat rooms, virtual white boards and other temporary settings and then store and index any content they create for later use, Milam said.

The merger with eRoom will allow Documentum to bring this product to market more quickly, possibly in the next few months, Documentum executives said in a conference call to discuss the deal. The companies were already close partners, the executives noted, and eRoom was already building integration with Documentum's software into its products.

Based in Cambridge, Massachusetts, eRoom is a privately held company with about 195 employees and 1,000 customers. It is profitable and generates annual revenue of about $9 million to $9.5 million, Documentum officials said on the call-in.

"I believe eRoom's culture, attitude and market position are very similar to Documentum's," said Dave DeWalt, Documentum's president and chief executive officer. "I think this will make Documentum a very difficult vendor to beat in the marketplace."

Joining forces expands Documentum's customer base and sales force and provides opportunities for "cross-selling" to customers, he said.

Documentum, in Pleasanton, California, will issue about 7.7 million shares of its common stock and pay about $12.6 million in cash for the outstanding shares of eRoom's capital stock. It will also reserve about 1.7 million shares of its common stock to cover eRoom stock options that it will assume in the acquisition.

Ahead of the news, Documentum's (DCTM) shares on the Nasdaq closed at $11.35, down about 10 percent on the day. After the close of regular trading the stock slipped further, to $11.19 at the time of this report, according to the Archipelago trading network.

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