Xpert Learning SkillSoft partner for the UAE announce the latest acquisition plans

Under the terms of the agreement, unanimously approved by the Board of Directors of SkillSoft and also by The Thomson Corporation, SkillSoft will pay approximately $285 million to acquire NETg.

Paul Gledhill Director of Xpert Learning says, "The acquisition is great news for Xpert Learning. It will enable us to offer a wider range of products and services to our customers in the Middle East region."

The acquisition will add to SkillSoft's existing offerings in e-learning content, Referenceware(TM) and learning platform technology, through the addition of NETg's complementary offerings in live virtual ILT, blended learning, content authoring/LCMS technology, learning content and custom development services. The acquisition supports the company's overall strategy to continually increase the quality and flexibility of learning solutions available to corporate, government, education, and small-to-medium size business customers from SkillSoft. Also importantly, the addition of NETg capabilities will strengthen SkillSoft's ability to compete for a greater share of the $13.2 billion corporate training market that includes many larger players with more comprehensive product offerings.

"As our enterprise customer organizations are increasingly connecting their learning strategies to their overall business objectives, we find those organizations looking for a greater range of products and services. Our enterprise customers have many choices of suppliers to meet their ever-expanding needs, and we continuously look for ways to expand our capabilities to sustain and increase our competitiveness," said Chuck Moran, CEO of SkillSoft. "The combination of SkillSoft and NETg will immediately bring a wider range of solutions to the customers of both SkillSoft and NETg. In addition, by combining the two organizations we will be able to optimize our development focus and deliver a wider range of e-learning solutions to customers than either organization has delivered in the past. This is key to increasing our ability to compete with the many larger players in the global corporate training market."

Financial Impact
NETg offers many of the same financial and operating characteristics as SkillSoft's business model, including an annual recurring subscription-based licensing model for access to its learning resources library, a direct sales force distribution system complemented by resellers and telesales support, and a Global 2000 client base offering visibility through multi-year contracts and renewal rates. As a result, the acquisition is expected over time to support both SkillSoft's revenue predictability and growth. The acquisition will also help SkillSoft to reach critical mass and shorten its timeframe to approach its long term operating profitability objectives through incremental scalability and significant cost synergies.

Based on unaudited financial statements, consolidated revenue for the NETg business was approximately $160 million in 2005 with gross margins of approximately 72%. In addition to its core e-learning content, which in 2005 was approximately 74% of revenue, NETg also offers other products and services, including instructor-led training, custom consulting services, print-based content and third party content products. Following the closing, SkillSoft intends to evaluate selected business lines and channels of distribution to determine if they are consistent with the Company's long term growth and profitability objectives.

In connection with the transaction, SkillSoft will convert revenue recognition practices relating to all NETg subscription agreements to pro-rata revenue recognition as well as net accounting for custom contracts where appropriate, consistent with SkillSoft's financial reporting practices. As a result of purchase accounting, deferred revenue will be reduced. Finally, the company expects that certain customers common to both businesses may be entitled to volume pricing discounts based on the combined entities subscription value.

Accordingly, these factors, together with normal business transition issues and any decisions relating to discontinued or divested operations, will impact the amount of revenue recognized under GAAP by SkillSoft on a going forward basis. SkillSoft anticipates the resulting reduction to NETg's historical revenue could be in the range of 25% to 35% excluding the impact of purchase accounting.

The acquisition is estimated to close in the first half of calendar 2007 (fiscal 2008). SkillSoft anticipates that at closing the company will accrue for transaction and integration costs along with purchase accounting adjustments, including a reduction of deferred revenue and the recording of other intangibles. Considering amortization of these intangibles as well as transaction and integration costs, the company expects the transaction to be dilutive to GAAP earnings in fiscal year 2008. However, SkillSoft expects the transaction will be significantly accretive to GAAP earnings in fiscal year 2009 as cost synergies are more fully realized. The final impact will depend on the timing of closing, which remains subject to regulatory approvals and other customary closing conditions, including the completion of year end audited financial statements by NETg. SkillSoft will provide specific guidance on the future operating results of the combined entity following the closing.