Wind River Systems Inc has agreed to acquire its long-term rival Integrated Systems Inc, in a stock-for-stock transaction valuing ISI at around $417m – a 75% premium over its current market price. Wind River will exchange .92 shares of stock for each ISI share. The company said time to market pressure and fast changing technology was the main reason for the acquisition, and that the combination would increase its resources and enable it to keep pace.
As the focus for embedded systems shifts towards new market areas, such as communications and internet appliances, the traditional real-time operating system companies are now facing competition from giant companies such as Microsoft Corp and Sun Microsystems Inc, rather than from their traditional smaller RTOS companies such as Microware Systems Inc and QNX Software Systems Ltd. Symbian Plc, backed by Nokia, Ericsson, Psion, Motorola and Matsushita, has also emerged as a new rival over the last year.
Tom St Dennis, who only took over as Wind River’s CEO last month, will become CEO of the combined company, which will retain the Wind River name. Chairman and co-founder of Wind River Jerry Fiddler will remain chairman. Naren Gupta, chairman and founder of ISI, becomes vice chairman. ISI’s president and CEO Charles Boesenberg will retire after helping with the transition. Three more business units will be added to Wind River’s current structure, adding aerospace and defense, automotive, and an embedded software development tools division. The other divisions are internet infrastructure, digital imaging, industrial and consumer. Wind River’s recently formed services division will be combined with ISI’s established Dr Design subsidiary.
Alameda, California-based Wind River and Sunnyvale, California- based ISI are much the same size. Wind River, which has a 40% share of the RTOS market, posted fiscal 1999 revenue of $129.4m and income of $26.1m, while ISI, its nearest rival, posted $133.5m in revenue and income of $9.6m. Wind River has over 600 employees and ISI over 700. The combined company will employ 500 development engineers and 200 technical service engineers. The two said they expected little reduction in work force as a result of the merger.
Wind River’s core real-time operating system product is VxWorks, while ISI has made its name selling the rival pSOS system. Yet both companies have been updating their images and their technologies recently, in an attempt to gain a foothold in the emerging market for post PC internet appliances. Wind River last year acquired Zinc Software Inc for its embedded graphical user interface technology (CI No 3,446), which works on top of both VxWorks and pSOS. In July this year it agreed to acquire RouterWare Inc for just under $22m, to get its hands on communications technology needed for internet appliances. Wind River has also invested in Liberate Technologies Inc, previously known as Network Computer Inc. In August, ISI announced its first reference platforms for internet appliances (CI No 3,735).
The two won’t talk about product integration plans until the merger is complete, and approval has been sought from the Security and Exchange Commission and the Department of Justice. Wind River says it has plans to become a one billion dollar company, both through further M&A activity and through continued investment in its existing products.
