JDA makes another run at i2

JDA makes another run at i2    Supply chain software firm JDA Software Group has agreed to acquire Dallas-based competitor i2 Technologies for about $396 million, the firms announced Thursday. JDA is using cash, stock and debt to fund the takeover.
   The news resurrects a merger that the two sides broke off almost one year ago for $346 million after JDA had difficulty borrowing money as banks stopped offering credit in an effort to survive the financial system collapse in fall 2008. i2 rejected JDA's request to lower the negotiated sale price and received a $20 million break up fee because JDA was unable to consummate the deal.
   The acquisition, JDA's 11th in 11 years, is expected to help JDA create a global supply chain management platform.
   During the past year, the combined revenue of the two companies was about $617 million.
   'Our strategic rationale for acquiring i2 is even more compelling today than it was a year ago. The challenges of the economic crisis have focused the market's attention on the disciplines of supply chain planning and JDA has established a leading role in this active market. Integrating i2's solutions and expertise will only expand our opportunity to build substantial new shareholder value over the coming years,' JDA Chief Executive Hamish Brewer said.
   The companies said the combination would improve innovation and geographic reach for sales and service. JDA plans to sell i2 products through its larger customer base with the goal of integrating consumer-driven manufacturers with retailers.
   'The combination creates the largest software company in the world focused on supply chain management,' said Jack Wilson, i2 chairman and CEO, in a conference call.
   Last year, some analysts questioned JDA's acquisition of i2, which had placed itself on the market, because of overlap between their offerings after JDA acquired i2 rival Manugistics in 2006. But JDA officials indicated the benefits of combining i2’s strength in manufacturing management with its automation capabilities for the consumer packaged goods industry, outweighed any redundancies.
   i2 offers software and managed services for supply, planning, retail, inventory, logistics, manufacturing and customer management.
   JDA functions as a traditional software company that relies on licenses and maintenance revenues, while i2 has been making a concerted push to become an outsourced business process services company that also offered software.
   The acquisition provides JDA new opportunities in the third-party logistics industry, one of i2’s strengths, and managed services.
   The two companies said the merger would create a more financially sound company, with projected net annual cost savings of $20 million per year.
   JDA, based in Scottsdale, Ariz., plans to finance about $275 million of the acquisition cost. If it can line up debt through a high-yield bond issue by Dec. 18, i2 shareholders will receive $18 per share of which $12.70 will be in cash and the rest based on a quarter-share of JDA stock. In order to remove uncertainty for i2 shareholders, the terms of the agreement call for JDA to offer them about $6 in cash and 0.58 shares of JDA common stock with a combined value of $18 if JDA cannot find a lender by the deadline. JDA said it has received a commitment from Wells Fargo Securities to provide a $120 million term loan and a $20 million revolving credit facility to finance the transaction under a back up plan.
   Termination penalties are $30 million for JDA and $15 million for i2.
   The $18 per share price for i2 represents about a 9 percent premium for i2 stock based on its Nov. 4 closing price.
   'Given the experience of last year we've been extremely careful to establish a structure for this transaction that absolutely minimizes the risk of failure to close,' Brewer said in the conference call for investors.
   Acquisition financing and terms have become much better in recent months, according to JDA Chief Financial Officer Pete Hathaway.
   JDA had net income of $4.3 million ($98 million before interest, taxes and amortization) on revenue of $385 million through the first three quarters of 2009, compared to $46 million in net income on $232 million in sales for i2. Together they now have 2,970 employees and more than 6,300 customers (i2 has 400 customers). Brewer said JDA is gaining market share as evidenced by 165 new customers in the past 12 months.
   A large part of the $20 million in savings is projected to come through reduction in headcount.
   JDA has nearly doubled growth since the acquisition of Manugistics, when pre-tax earnings were $50 million.
   Brewer confirmed earlier guidance that JDA expects to close the year with about $385 million in revenue, including up to $90 million in licenses, with pre-tax profits of $95 million.
   Brewer pointed to JDA's solid financial footing and its track record of digesting other companies as reasons why it can successfully integrate i2, whose customer base consists of large, global companies with complex supply chains. Both companies have complementary customers, products, technology platforms and service centers in India, Brewer said.
   He said the rationale for the acquisition remains because i2 has streamlined operations and strategy, and increased profitability in much the way JDA planned to do if had owned the company during the past year.
   The deal, which is expected to close in the first quarter of 2010 pending i2 shareholder and regulatory approvals, has been approved by the boards of both companies. ' Eric Kulisch