17 Apr 2012
On April 17, 2012, IBM and Toshiba TEC announced a definitive agreement for the sale of IBM’s Retail Store Solutions business to Toshiba TEC, and a multi-year business partner agreement between IBM and Toshiba TEC to integrate retail store solutions for Smarter Commerce.
A copy of the announcement press release is available here http://www.ibm.com/press/us/en/pressrelease/37446.wss
In 2011, IBM announced a major Smarter Commerce initiative that helps businesses automate and infuse intelligence into their procurement, marketing, sales and customer service functions to better serve today’s empowered online consumer. To successfully scale out the significant Smarter Commerce opportunity, a strong ecosystem of partners is required. After the transaction closes, Toshiba TEC will be the world’s leading retail point-of-sale systems provider, with necessary scale and resources to address the retail space. IBM will continue its strategic focus and investment in the build out of its smarter commerce capabilities where it provides the most value – managing transactions and data, and applying analytics. Together, IBM and Toshiba TEC will have the broadest multi-channel offerings worldwide.
IBM will sell its overall Retail Store Solutions business operations to Toshiba TEC, a subsidiary of Toshiba Corporation. Toshiba TEC will establish a holding company which will have its worldwide headquarters in Raleigh, NC and sales offices throughout the world. The holding company will initially be owned 80.1 percent by Toshiba TEC and 19.9 percent by IBM. After a three year period, the holding company will become a wholly-owned subsidiary of Toshiba TEC.
In addition, IBM and Toshiba TEC will enter a multi-year agreement in which Toshiba TEC will become an IBM Premier Business Partner for Smarter Commerce.
In an effort to ensure a smooth transition for the new company and for IBM’s clients, IBM will provide a series of fee-based services.
In addition, IBM will provide the use of its brand for three years.
The transaction will be completed as soon as is practical, subject to the satisfaction of regulatory requirements and customary closing conditions. The transaction is expected to be completed in phases, with the initial closing expected in late second quarter or early third quarter of 2012, and subsequent closings by the end of the year. During the period between signing and closing, IBM will maintain its current business operations.
Proceeds and Gain
The transaction price is $850 million and as consideration, IBM will receive approximately $800 million in cash, net of closing date working capital adjustments. In addition, IBM will receive a 19.9 percent ownership for three years in the holding company.
A portion of the aggregate purchase price will be received on the initial closing date and on the first anniversary of the closing. The remaining portion will be paid on the third anniversary in exchange for IBM’s equity interest.
IBM expects to recognize a total pre-tax gain on the sale of between $450 million and $550 million. This gain will be recognized consistent with the closing schedule for the transaction.
The exact amount of the gain and the breakdown by closing date is not yet determinable and will be disclosed when the closing occurs. The variables that can impact the final gain include the valuation of the final balance sheet transferred, the valuation of other related agreements and transaction-related expenses.
The company expects that additional workforce rebalancing charges, primarily outside the United States, will effectively offset the gain when it is recognized.
Revenue and Profit Impact
IBM’s Retail Store Solutions division is reported in IBM’s Systems and Technology segment, and the associated maintenance operations are a part of the Global Technology Services business. In 2011, this combined business delivered $1.15 billion of revenue.
After closing, IBM’s revenue will be reduced by almost a point of growth per quarter for the first year, net of the services agreement. The ongoing operational impact post-divestiture will not be significant to earnings per share in any quarter.
The net impact of the gain, offset by workforce rebalancing charges, along with impact of the loss of the Retail Store Solutions business is included in the 2012 operating earnings per share expectations discussed during IBM’s first quarter 2012 earnings call.