InteliData Plans Breakup After Short Marriage

InteliData Plans Breakup After Short Marriage

By Bob Starzynski
Staff Writer

InteliData Technologies Corp., a diversified technology company formed through a merger just 15 months ago, is breaking its three businesses apart to improve their individual performance, executives say.

The Herndon, Va.-based public company will sell off its interactive services division and then separate its telecommunications products and electronic commerce businesses within the next 45 to 60 days, according to company officials.

"We are making no secret of the fact that we want to eventually split into separate public companies," said John Backus, chief executive of the company formed in November 1996 by the merger of US Order of Herndon and Colonial Data Technologies of New Milford, Conn.

As part of InteliData's reorganization, Brian Bogosian, former head of USTeleCenters in Boston, was brought in last month as president and CEO of the company's telecommunications division. With that move, Backus is relinquishing control of more than 90 percent of the company and only maintaining leadership of the electronic commerce division.

Both company management and industry analysts said the moves are the best solution for InteliData, which is suffering from flat growth and overdiversification.

John Backus, chief executive officer of InteliData

"By splitting the company into parts, they can better focus on the individual parts without taking away from one to grow the other," said Kevin Timmons, an analyst with First Albany Corp. in Albany, N.Y.

Last month, InteliData released its 1997 financials with a note that it has retained NationsBank Montgomery Securities to find a buyer for the interactive services division, which provides such things as sports scores and stock quotes to pagers and digital telephones.

Backus told Washington Technology last week that the division is a fledgling business with 25 employees and under $1 million in annual revenue that needs resources to succeed.

"The division has a lot of potential," he said, "if a buyer is willing to invest $3 million to $5 million [in] each of the next couple years to make it a leader." Backus added that he has a short list of potential buyers and is starting to negotiate a deal from there.

Once the dust settles from that divestiture, the two remaining divisions will focus independently on returning to profitability. The company lost $90 million last year and $95 million in 1996.

Through the marriage of US Order and Colonial Data, InteliData is a company that makes everything from electronic commerce software to telephone caller identification equipment and smart telephones. However, in the year since the marriage started, the smart phone has not gained wide acceptance. The company lost much of its caller ID base after having its costs undercut by competitors. And software has not added much to the revenue stream.

One year ago, company officials said they expected growth in the telecommunications business to bring $150 million in 1997 revenue. Instead, revenue was $60 million.

Colonial Data shareholders got shares of InteliData worth $8 in the merger. On Feb. 25, the stock closed at $3.

"No one is happy when their stock drops, especially 60 to 70 percent in one year," Backus said. "If I had it to do over again, knowing the decline in pricing of the caller ID market, I would not have priced the [Colonial Data] deal so high."

But all of the moves that InteliData is currently undergoing should change things for the better, Timmons said. "This is the move that they have to make," he said.

Brian Bogosian, president and CEO of InteliData's telecommunications division

Backus went to his board of directors last summer and told them he was having trouble managing the entire company through the 18 managers who reported directly to him. A decision was made to trim the staff - especially at the management level - and bring in someone to split responsibilities with Backus.

Consequently, more than 50 employees were let go last fall as the staff was pared back to 300. Previously, the company had six executives at the senior vice president level or higher. Now, it is just Backus and Bogosian.

"We each have our own business," Bogosian said. "Those businesses are at different points, but both need help. The financial solutions business is basically a technology start-up that has to be nurtured. The telecommunications business is an established company that needs focus."

Both executives have big plans for their respective divisions and both expect to part ways once each business is on the straight and narrow.

"This allows me to go back to my roots," Backus said. After the sale of the interactive services division, Backus intends to add scale quickly to the electronic commerce business by ramping up sales of software to banks that helps in setting up home-banking services. He added that the company just landed such an agreement with one of the country's top five banks but declined to identify the bank.

Bogosian's telecommunications business already has a firm foundation. It needs to tweak its business processes and strategies, the new executive said. Also, he added, "instead of doing a hundred things half-well, we need to focus on fewer products." With that focus, the company needs better product management and understanding of product life cycles.

Although neither executive would give an indication of when the two remaining businesses will split completely, Backus said that it will not be until both are healthy enough to succeed on their own. In the meantime, both divisions will still be part of the same corporation, but Backus will have no role in the telecom business and Bogosian will have no role in the electronic services business.

Timmons, who has placed a neutral rating on InteliData's stock, said that the turnaround will not be a cake walk. "The competitive forces in both markets are pretty severe," he said. "The e-commerce business is going to be competitive in the long run. The telecom business should be fixed up and sold down the road."

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