L&H Buys Dragon Systems in US$592M Deal

LONDON (03/28/2000) - Speech technology company Lernout & Hauspie Speech Products Inc. (L&H) has agreed to acquire U.S.-based rival Dragon Systems Inc. in a deal valued at US$592.7 million, based on the company's closing price last night.

All 350 employees of Newton, Massachusetts-based Dragon will become L&H employees, L&H said in a statement today.

L&H will purchase all outstanding stock of Dragon, which had 1999 revenues of $60 million and a net loss of $22 million, for 5.45 million shares of L&H common stock, according to the statement.

L&H said it hopes to immediately gain markets from the extra languages that Dragon supports, including Japanese, Italian and Spanish. The company expects to leverage Dragon's resources in telephony, medical, legal and health care applications to expand its existing offerings and customer base in those areas, according to the statement.

"Dragon also has 35 more than patents, which definitely enhances our speech portfolio," Jo Lernout, the company's co-chairman of the board, said in a conference call today.

Dragon's customers include Boeing Co., Compaq Computer Corp., Corel Corp., Dell Computer Corp., Fujitsu Ltd. and Sony Corp., among others. L&H will also gain lab facilities in the U.S., and in Cheltenham, U.K.

The first step L&H will take after the acquisition is to try and get more copies of both companies' software on the desktop. "Today, only half of one percent or so of all personal PCs are enabled with voice technologies. That is an enormous drought and there is demand," Lernout said.

The company also has designs on the mobile Internet market. "It's very hard to surf the Net with a one and one-half inch screen and no keyboard," Lernout said. "And when you are driving, you need to keep both hands on the wheel and eyes on the road," he added, referring to Internet-enabled automobiles.

The company is also going to look closely at forming more strategic alliances.

"In the last month, a lot of companies have wanted to start strategic alliances with us," Lernout said. The company will continue to expand its relationship with Microsoft Corp., which, in addition to having a $60 million investment in the company, offers L&H's translation service on its Microsoft Office Web site.

[See "L&H Offers Translation to Microsoft Office Users," Dec. 8, 1999.]L&H will continue to produce and support products from Dragon in the short term, but "in the long term the goal is to ultimately have a single product," Lernout said.

Earlier this month, L&H extended its reach in the medical transcription market with the $510 million purchase of U.S.-based Dictaphone Corp. [See "Lernout & Hauspie To Acquire Dictaphone," March 8.]L&H expects the acquisition of Dragon, which is subject to standard government and regulatory approval, to close in the next few months.

Dragon Systems, in Newton, Massachusetts, can be reached at +1-617- 965-5200, or on the Web at http://www.dragonsystems.com/. Lernout & Hauspie, with dual headquarters in Ieper, Belgium and Burlington, Massachusetts, can be reached at +32-57-228-888, or on the Web at http://www.lhsl.com/.

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