Babylon Ltd., the Israeli translation software provider that has a partnership with Google Inc., will seek to raise $115 million in an initial U.S. public offering of shares that it wants to list on the Nasdaq stock exchange.
The Or Yehuda, Israel-based company plans to use the funds from the sale to cover marketing costs as it expands business and “may also use a portion of the net proceeds to make acquisitions or investments in complementary companies or technologies,” according to a prospectus filed yesterday with the U.S. Securities and Exchange Commission.
Babylon’s stock has surged 253 percent this year, outpacing a 13 percent advance for the benchmark TA-25 Index, as income increased due largely to an advertisement revenue-sharing agreement with Google, the most-used Internet search engine. The sale comes amid investor concern a change to the Google agreement could endanger future earnings.
“We derive the substantial majority of our revenues from our agreement with Google, and the termination of, or our failure to renew, this agreement could have a material adverse effect on our results of operations,” Babylon said in the filing.
Shares of Babylon, which also said it would stop paying dividends for “the foreseeable future” to fund its expansion, fell as much as 5.3 percent to 31.65 shekels, before trading at 32.09 shekels at the 4:30 p.m. close in Tel Aviv. Today’s volume of 1.08 million shares traded was 165 percent of the three-month daily average.
“Investors were hoping they’d raise double that amount,” said Beni Dekel, a senior equity analyst at the Union Bank of Israel Ltd., referring to Babylon’s intention to raise $115 million. The amount listed in the filing is preliminary and may still change, Dekel said.
Babylon said on Oct. 17 that Google’s advertising policy changes weren’t expected to significantly impact its performance. The software provider’s third-quarter profit surged six fold after revenue more than tripled.
Controlling shareholders Reed Elsevier Ventures 2004 Partnership LP and Israeli online gaming entrepreneur Noam Lanir may sell shares in the IPO, according to the filing. Citigroup Inc. and Jefferies Group are the sale’s lead underwriters, the company said.
Google accounted for more than 80 percent of Babylon’s 2011 revenue, according to the filing. The company licenses Google’s search results for a fee and receives a percentage of any advertising revenues generated when a user clicks on a sponsored link provided.