Seeking to strengthen its position in the payment, petroleum, and smart ID solutions vertical markets, On Track Innovations, producer of contactless smart cards, has announced agreements to acquire one company while divesting itself of another. The agreements are expected to increase OTI’s long-term profitability.
Intercard Kartensysteme GmbH Subsidiary Sold for $2.5 Million; ASEC S.A. of Poland Acquired for $1.95 Million in OTI Ordinary Shares
Fort Lee, New Jersey (September 20, 2004)–On Track Innovations Ltd. (OTI) (NASDAQ: OTIV; Prime Standard (Frankfurt): OT5), a global leader in contactless microprocessor-based smart card solutions for homeland security, micropayments, petroleum payments and other applications, announced today that it has entered into two agreements in furtherance of its previously-announced strategic focus on the vertical markets of Payment, Petroleum and Smart ID solutions. Both agreements are subject to certain closing conditions. These transactions will strengthen OTI’s position in these markets, enabling the Company to provide end-to-end solutions with local technical support and maintain its focus on higher margin products in the growing European emerging markets. The transactions are expected to improve the Company’s long-term profitability with some decrease in revenues in the short term by adding a profitable company with higher margins and recurring revenue businesses and by selling an existing division with high operating expenses due to a mix of revenues originating from a large number of limited size projects and products with relatively low margins.
The first agreement contemplates OTI’s purchase of ASEC Spolka Akcyjna (“ASEC”) from Nextel Spolka Akcyjna (“Nextel S.A.”), headquartered in Krakow, Poland. ASEC is a software company that provides complimentary solutions to OTI in the form of software and back office systems for mass transit ticketing and Payment solutions. The acquisition of ASEC, a profitable company, which is already working with OTI on various programs in Poland, will enable OTI to provide the required local support service for programs in the emerging European markets and will better position OTI to also provide complete solutions in these markets for its Petroleum and SmartID solutions.
The second agreement provides for the sale of OTI’s wholly-owned German subsidiary, InterCard Kartensysteme GmbH. This subsidiary is engaged in the sale and support of closed campus systems, which is considered to be a highly competitive market with relatively low margins and high operating expenses. OTI will retain its profitable InterCard Systemelectronic GmbH subsidiary, which provides OEM and electronics manufacturing services.
In commenting upon the two transactions, Mr. Oded Bashan, President & CEO of OTI noted that “we have been able to accomplish two significant steps in furtherance of the restructuring of our marketing strategy which we initiated earlier this year, and which focuses on OTI providing complete solutions to the three vertical markets of Payment, Petroleum and SmartID. These transactions will strengthen our position and our ability to focus on these vertical growing markets where we sell products that adhere to our higher margin and recurring revenues business model. The divestiture of our Intercard Kartensysteme subsidiary will enable us to concentrate our resources in areas that we believe to be more promising and potentially more profitable”.
In exchange for all of the outstanding shares of the capital stock of ASEC, OTI will issue to Nextel S.A. OTI ordinary shares having an aggregate market value of between $1.6 million and $1.95 million. The exact amount will depend upon the level of EBITDA achieved by ASEC during 2004 and 2005. OTI has undertaken to register the shares it will issue to Nextel S.A. under the U.S. Securities Act of 1933. The proceeds payable to OTI for the outstanding shares of InterCard Kartensysteme are expected to be approximately $2.5 million.
Established in 1990, OTI (NASDAQ: OTIV, Prime Standard: OT5) designs, develops and markets secure contactless microprocessor-based smart card technology to address the needs of a wide variety of markets. Applications developed by OTI include product solutions for petroleum payment systems, homeland security solutions, electronic passports and IDs, micropayments, mass transit ticketing, parking, loyalty programs and secure campuses. OTI has a global network of regional offices to market and support its products. The company was awarded the prestigious ESCAT Award for smart card innovation in both 1998 and 2000. Major clients include: MasterCard International, Atmel, BP, Scheidt & Bachmann, EDS, Repsol, and the Government of Israel. For more information on OTI, visit www.otiglobal.com.