Is Siebel In Play? Read On…
There’s been some chatter and press lately about Siebel Systems being a
potential acquisition target.
On Saturday, May
28, The
San Jose Mercury News reported tensions between the company and its
large investors regarding an employee benefit plan. Siebel increased employee
benefits, and some have interpreted this as a tactical move to make Siebel more
expensive (and therefore less attractive) to a potential acquirer, rather than
simply a move to benefit the employees.
Then on Monday May
30, E-Week.com
reported that Siebel would continue with its technology development
roadmap, despite some recent management changes. The company still plans to
release Siebel 8.0 in 2006, an upgrade from the current (outdated) Siebel 7.0
series products. Recall in April, Michael Lawrie, Siebel’s former CEO, was
booted from the firm. In May, Eileen McPartland, the company’s former SVP of
global services, resigned.
But I doubt Siebel
is in play. Remember how the daisy chain works: Some sell side analyst raises
the possibility of an acquisition and then it reverberates through the media and
the investment community. What’s the purpose of all this for the sell side
analyst? Generate trades. Also, the analyst has the ability to point to the
“early call” if the acquisition actually happens. It’s not impossible Siebel
would be acquired; but I don’t see its probability increasing.
First, regarding the employee benefits plan, it struck me from the start that
putting a change of control parachute for its employees acts like a poison pill;
but I’m not convinced the benefits plan was conceived as a pill. (Although the
money back guarantee from PeopleSoft didn’t turn out to be the winner Craig
Conway (former PeopleSoft CEO) thought it would be.) In any case, these kinds of
benefits— whether intended as a pill or not — have the effect of keeping people
from worrying even more about the security of their jobs and their future with
the company.
Second, as to disgorging the cash from Siebel, it wouldn’t be a bad idea. But I
wonder if Barry Rosenstein (quoted in the Silicon Valley piece above) has a
position in ePiphany – a company that truly should piss on the campfire,
distribute its cash to investors in a one-time dividend, and go home.
Why buy Siebel?
There’s really not that much value to it. Siebel has its own problems, as
evidenced by its last earnings report: Slowing
software sales led to a slowing top-line; Siebel’s revenues for the quarter
coming in at around $300 million, $7 million below prior expectations.
There’s been a fair amount of poor execution because the sales people are not
aware of all the hoops they have to jump through to close the deal and therefore
are not pushing hard enough. Siebel also does not place enough emphasis on
analytics – which would be a sure way of getting more deals sold more quickly.
Siebel
needs to do a whole lot that’s different; and an acquirer would need to address
all that. The company really needs to change just about everything: it’s truly
screwed up:
- Sales –
The sales process has not evolved to the realities of today’s market. The
sales people are not aware of all the hoops they have to jump through to close
the deal and therefore are not pushing hard enough;
Marketing – The marketing message does not adequately recognize the value of
analytics and visibility. Siebel needs to place more emphasis on analytics,
which would be a sure way of getting more deals sold more quickly; and- Product
– It should acquire reporting and analytics to improve what it has in these
areas.
I don’t think the
software business in general — or for Siebel — is any stronger today than it
was last year. Software’s just like any other capital good: a strong cycle is
followed by a weak one. Companies bought too much software/hardware in the
1990s. During the recession they realized they didn’t “have†to buy anything.
CFOs, meanwhile, have centralized and elevated software spending decisions. It’s
harder to sell any kind of software. When times were great, Siebel had a killer
sales force. However, now that they’re not, they don’t.
In addition, Siebel
is getting squeezed by Salesforce.com etc. One of the biggest fantasies of the
1990s was the illusion of “CRM” (customer relationship management). There are a
relative handful of companies that need “a” CRM application. Most need sales
force automation, marketing automation, call center automation, customer support
automation, maintenance dispatching, etc. – but only as discrete applications.
The reason why folks have bought into Salesforce.com’s message is they need
simple sales force automation, including the ability of sales people to access
their systems easily on the road. Â They don’t have the time and money or
inclination to buy a “CRM” solution.
Siebel’s
problems are still fixable. It’s still a great franchise. But the mindset of the
organization is still stuck in the 1990s. Buying the company, an acquirer would
have to hope that the new CEO Shaheen, the business consultant, or else a new
management team, can do an internal turnaround. They’d have to hope that having
lived through running a total IT hype business Shaheen’s got the sense to see
through Siebel’s internal BS and get it focused on what counts.Â
Siebel has a market
cap of around $4.6+ billion as of the market close on Friday, May 27.
Bottom line: Who
indeed has that kind of money — $4.6 billion plus a premium — to buy Siebel?
An even
better question: Why would Siebel sell? The major difference between a private
equity fund (or hedge fund) and a guy running a business like Siebel is the
former can sell and move on. The latter has to find another job. And the job
market in software is tight (even more so as the PeopleSoft / Oracle layoffs
continue). Siebel is less inclined to sell.
And sell
to whom? Oracle, for example, has the cash but is
highly unlikely. The personalities prevent it: Larry and Tom loathe each other.
So it would take the death of both founders.
I can’t think of a
likely strategic buyer with the case to buy Siebel. But who knows? And if a
strategic investor (such as Carl Icahn, for example — already a minority
shareholder in Siebel), a private equity fund, or a strategic-type hedge fund
wants to increase their stake and take a shot at running Siebel better than its
current management team, that could be a real possibility.
Technically, I’d favor the long side on SEBL. The sell-off in early April was
cancelled out by a move up in early May on heavy volume. That move is basing and
flagging right now. If it can attack $9.6ish on volume, then it has a good
chance at $11 beans, which would also break the downtrend and imply a breakout.
So, technically, the stock looks like it’s picking up steam. All it needs is a
fundamental catalyst to bring in the migration and second leg of the move.
Perhaps take-out speculation can help. I suspect the company could slightly beat
its second quarter numbers — that could be such a catalyst.
Melanie Hollands
