Rise in Baltimore price means less than 1m shares for GTE

The sharp rise in Baltimore Technologies' share price since it first announced the $150 million (155.44 million) acquisition of US e-commerce security group CyberTrust Solutions in January means that Baltimore has had to issue far fewer shares to GTE Corporation, CyberTrust's parent company.

When the deal was first announced in January, it was estimated that Baltimore might have to issue up to 1.3 million shares to GTE. But under the terms of the all-share deal, the number of shares GTE receives is based on the 10-day average price for Baltimore shares prior to the closing of the deal yesterday.

As a result, GTE's Contel Federal Systems subsidiary is getting 936,111 Baltimore shares, about 2.3 per cent of the enlarged share capital. The company plans to sell these shares through a Merrill Lynch tender on the London stock market. Initially, Contel was restricted to selling 80 per cent of its stake, but this restriction was waived by Baltimore, allowing Contel to sell its entire 2.3 per cent holding.

Baltimore is also issuing 1.6 million shares to a trust to cover incentive share issues to CyberTrust. This brings the CyberTrust employees into line with Baltimore's existing staff as regards share options and incentives. The two issues do dilute the stake of Baltimore's existing shareholders, with the number of shares in issue rising from 37.7 million to 40.2 million. However, the dilution is significantly less than if the deal had been finalised when the Baltimore shares were trading at a substantially lower price.

In a separate development, Baltimore is splitting its shares on a 10-for-one basis to improve liquidity. This means that more than 400 million shares will be in issue, bringing the unit price down to a much more liquid £10 sterling from the £100-plus price on the London market yesterday. The lower unit price should make it easier for small investors to invest in Baltimore shares and should improve liquidity.