Kana and Broadbase Software merge to survive

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Kana Communications is to merge with Broadbase Software in a $75.8 million stock deal aimed at helping Kana turn a profit before its cash runs out.

The announcement comes at a time when Kana and other not-yet-profitable software vendors have seen their cash reserves, revenues and stock prices shrivel under the pressure of a technology spending slowdown sparked by the flagging US economy.

“The bottom line is that they bought cash,” Gartner senior research analyst Esteban Kolsky, said of the Kana deal.

Kana said recently that it had $20 million remaining to fund operations. As part of the merger, the company will pick up Broadbase’s cache of about $130 million.

Shares of Kana and Broadbase each now trade under $1. Both companies have yet to reach break-even and warned that the slowing economy would cause their first-quarter losses to be bigger than expected.

Under the agreement, Broadbase president and chief executive Chuck Bay will retain his titles at the merged company, called Kana Software. Kana chairman and chief executive Jay Wood will be the chairman of the new company’s board of directors.

Kana will offer 1.05 shares of its stock for each Broadbase share as part of the deal, which is subject to shareholder approval.

The merger will round out Kana’s offerings with Broadbase’s software.
That beefed-up product also will help the new company challenge sector giant Siebel Systems.

The new company has more than 1,300 customers, including Bank of America, Cisco Systems and Microsoft.

In a recent study, a Merrill Lynch analyst found that most technology stocks that slip to single-digit pricing don’t see double digits again.

Industry and financial analysts expect strategic deals like the one Kana and Broadbase announced to accelerate as small software makers look for ways to stay alive in the post-boom economy.

One company that didn’t make it was Quintus Corp.The California-based company said it would sell most of its assets to telecommunications equipment supplier Avaya for $30 million in cash.

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