i2 spikes JDA merger
Supply chain software provider i2 Technologies announced Thursday it has terminated its merger agreement with JDA Software Group.
Under the all-cash deal reached in August, JDA was to pay $14.86 per share of i2 common stock, or $346 million.
Dallas-based i2 said it expects to receive a $20 million break up fee within three days even though it pulled the plug on the deal.
i2 officials declined to discuss details of the divorce between the two tech companies because JDA has not consented to disclose any discussions between the parties.
Clues to a potential deal problem surfaced on Nov. 5 when i2 issued a news release stating that it had received a written request from JDA to adjourn its special stockholder meeting scheduled for Nov. 6 to approve the merger. JDA, under pressure from the financial crisis, asked to negotiate a lower purchase price because “available credit terms would result in unacceptable risks and costs to the combined company.”
JDA’s lenders for the deal included Credit Suisse, Credit Suisse Securities, Wachovia Bank and Wachovia Capital Markets. Banking outfit Wells Fargo & Co. purchased Wachovia in October in a distress sale after Wachovia nearly collapsed after losing billions in the mortgage market.
i2 declined the request and went ahead with the meeting, during which stockholders approved the deal, “to preserve its rights under the merger agreement, including its right to pursue a termination fee from JDA under certain specified circumstances,” i2 said at the time.
“We are committed to completing the merger transaction at $14.86 per share of common stock with JDA,” said i2 Chairman Jack Wilson.
i2’s board then rejected JDA’s subsequent offer to buy i2 at a significantly reduced price from the original proposal.
Some analysts had questioned JDA's acquisition of i2, which began seeking suitors earlier this year, 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 would have provided JDA new opportunities in the third-party logistics industry, one of i2’s strengths, and managed services.
“I don't think this acquisition would have gone as smoothly as JDA was expecting,” Adrian Gonzalez, an analyst for research firm ARC Advisory Group, wrote on his blog. “For one, there was a huge mismatch between their corporate cultures (the doom of countless acquisitions), and for this reason, many i2-ers are breathing a sigh of relief today. But on the flip side, the cloud of uncertainty is back over i2, which could dampen its sales activity in 2009. The company also lost some talent over the past few weeks (although their core Transportation Management System team, the 'bread and butter' of i2, is still intact).”
In mid-November i2 reported third quarter revenue declined 3 percent to $64.8 million from a year ago, but profit sank 58 percent to $1.9 million from $4.5 million. Nine-month revenue totals were also down 3 percent to $197 million and $85 million in net income based on an $83.3 million patent infringement settlement with SAP.
i2 has $228 million in cash and another $20 million it expects to collect from JDA.
“Cash is king in a down economy, and it should help i2 weather whatever sales impact comes from this failed transaction or the economic downturn,' at least in the near term, Gonzalez said
The break up makes sense for JDA given the current financial crisis and i2’s lower valuation today, he noted.
“There is a lingering danger, however, for both i2 and JDA. i2 shared a lot of intellectual property information with JDA, as the latter worked to formulate a unified product roadmap. This knowledge could help JDA when facing i2 in a sales situation. But JDA also has to tread carefully moving forward with its R&D efforts, or it could expose itself to future litigation from i2,” Gonzalez said. ' Eric Kulisch