May 10, 2005, 8:38 AM — ScanSoft Inc. said Monday it has agreed to buy speech recognition software rival Nuance Communications Inc. in a stock-and-cash deal ScanSoft valued at about US$220 million. ScanSoft will use the acquisition to broaden its product portfolio and save an estimated $20 million to $25 million annually through cost reductions from combining the two companies, ScanSoft said.
Peabody, Massachusetts-based ScanSoft makes digital document management and speech software. In speech recognition, its chief rival is Nuance: Gartner Inc. estimated that at the end of 2004 the two vendors together controlled 77 percent of the market for speech server systems.
Although ScanSoft is the acquiring company, it plans to do business under the name Nuance when the deal closes. ScanSoft Chairman and Chief Executive Officer (CEO) Paul Ricci will continue to hold those positions in the combined company, while Nuance President and CEO Chuck Berger will join the expanded company's board. Pending shareholder and regulatory approvals, ScanSoft expects the deal to close in September.
ScanSoft will issue 28 million shares of its stock to Nuance shareholders, who will receive 0.77 shares of ScanSoft stock for each share of Nuance. ScanSoft will also pay Nuance shareholders $2.20 cash per share. Before the deal's announcement, ScanSoft shares (SSFT) ended trading on the Nasdaq exchange up 2 percent, at $4.53, while Nuance shares ended Monday trading up 2 percent at $3.10, giving the company a $112 million market capitalization.
ScanSoft and Nuance also reported on Monday their results for the quarter ended March 31. Nuance, based in Menlo Park, California, reported a net loss of $4.6 million on revenue of $11.8 million, a 7 percent revenue drop from the same quarter a year earlier. ScanSoft had a net loss of $1 million on revenue of $53.1 million, up 24 percent from the year-earlier quarter.
ScanSoft expects to lay off employees in connection with the Nuance deal. It said it anticipates up to $25 million in annual savings from staff cuts, office site consolidations and elimination of redundant operating expenses.
