Sept. 22--It was expected. To tell the truth, it was so expected, that it is surprising that it only happened now. Online translation company Babylon Ltd. (TASE:BBYL), which has established itself as Google Inc.'s (Nasdaq: GOOG) dominant partner in its Adsense program, withdrew last Thursday its draft prospectus for an offering on Nasdaq.
Babylon, which has a market cap of $396 million on the TASE, stated in its request to the US Securities and Exchange Commission (SEC) to withdraw the prospectus that it was examining a potential strategic deal, and therefore no longer saw a need for an offering on the US capital market. Babylon did not disclose the deal in question, but every Israeli investor (and many American investors) know that the reference is to the pending merger with online software distributor ironSource Ltd., a merger with motives very similar to those of the merger between Perion Network Ltd. (Nasdaq:PERI: TASE:PERI) and a unit of Conduit Ltd.
Babylon's pending merger with ironSource may be the final reason to terminate the attempt at an offering in the US (after the merger, Babylon will not be the same company described in the draft prospectus), but the offering actually became unrealistic long before Babylon sent out feelers to ironSource. The draft prospectus was filed with the SEC in November 2012, shortly after the share price rose sharply, and while the company was adjusting to Google's new pricing and regulations. Later, when the regulations came into effect and their critical consequences became known, the share price began to fall and an offering on the US capital market became irrelevant.
Babylon is now trying to create value by merging with ironSource, a merger in which the latter's management will apparently take over the reins of the merged company (in contrast to what happened in the Perion-Conduit merger), and its shareholders will own the controlling core.
Since the beginning of the year, Babylon's share price has risen 40 percent, partly because of the planned merger. Babylon's controlling shareholder, Noam Lanir, who owns 22.5 percent of it (partly through Livermore Investments Group Ltd. (AIM:LIV)), a stake worth NIS 312 million.
Around the time that the draft prospectus was filed, Babylon cancelled its dividends policy in order to be classified as a growth company and not a value company, and stopped distributing them. In June, the company resumed the distribution of dividends, a sign that the offering was already irrelevant. It has since distributed NIS 80 million in dividends, a substantial sum, which was apparently intended to compensate for the halt in dividends for nearly a year.
As of the end of June, Babylon had NIS 31 million in profits available for distribution as dividends.