By Nick Patience

Email hosting form Critical Path Inc is acquiring one of its main rivals, Isocor Inc in a stock deal worth $287m, based on Critical Path’s closing price on Wednesday night. Isocor is a much larger company in terms of revenues, but smaller in terms of market capitalization. Isocor shareholders will receive 0.4707 shares of Critical Path’s stock for each of their shares and the deal is expected to close in early 2000.

Isocor brings some 30 million mailboxes to CP, but perhaps more importantly, it also brings a large European sales force, directory software and services that CP does not have and as an added bonus, it is profitable at the net level.

Isocor may be bigger, older and more extensive from a product point of view, but it has suffered numerous blips along the way over the years, and had a particularly ugly second half of last year, though has picked up since. The offer of the equivalent of $23.52 for each Isocor share was presumably too good to refuse, representing as it does a hefty premium over Wednesday’s closing price of $10.125. Isocor closed yesterday up $7.25, or 71.6% at $17.375, while Critical Path finished down $3.00, or 6.0% at $47.00.

Santa Monica-based Isocor has offices worldwide, 75 affiliates and 50 of its 75 sales people are based in Europe. Isocor will launch version 2 of its meta directory product, MetaConnect out next month that will run on Unix for the first time. Isocor’s CEO Paul Gigg estimates that two-thirds of Isocor’s sales of MetaConnect will be on Unix and version 2 will also interface with Microsoft’s Active Directory technology. MetaConnect is being resold by the Sun-Netscape alliance, a.k.a. iPlanet, but it hasn’t seen any revenues from that arrangement yet. Gigg will join Critical Path as executive VP and chief operating officer.

Meanwhile, both companies reported their third-quarter results yesterday. Critical Path posted net losses of $24.3m, which included charges totaling $18.1m for stock compensation schemes and acquisition-related charges, up from losses of $3.1m last time. Revenues in the quarter rose to $4.9m, from just $156,000 last year. Without the charges CP recorded net losses per share of $0.17 per share, three cents better than the Street was expecting, according to First Call.

For Isocor, the third quarter saw net profits of $88,000, of $0.01 per share, against net losses of $1.8m last time. That was a big upside surprise for the Street, which had been expecting net losses of $0.07 per share, according to First Call’s roundup. Revenues were up 78.3% to $9.4m.

CP likes to measure itself by mailboxes, of which it had 6.7 million by the end of the third quarter, which contrasts with Isocor’s 30 million or so. CP says it generated $0.30 per mailbox ion the third quarter, up from $0.26 in the previous three months, while costs per mailbox came down from $0.41 in the second quarter to $0.28 in the third. The company reached the milestone of positive gross margins during the quarter and is on course for profitability in the fourth quarter 2000. The company says Isocor will be immediately accretive to both top and bottom lines from the get-go, but doesn’t want to bring its profitability target forward just yet.

CP won 265 net new contracts during the period, including Exodus Communications, Qwest Communications, Mitsui and Cable & Wireless. Isocor brings with it some illustrious mailbox customers, including AT&T Corp, UUNet and its parent MCI Worldcom Inc; the last of those is also a Critical Path customer. CP’s chief executive Doug Hickey says he feels very, very good about the remainder of the year. á