JDA/i2 deal is called off
Jeff Berman, Group News Editor -- Supply Chain Management Review, 12/8/2008
DALLAS—Less than three months after JDA Software Group Inc., a provider of demand chain technology services, announced it planned to acquire i2 Technologies, a supply chain management software and services company, for approximately $346 million, it appears that the deal is off the table.
Last week, i2 said it has officially terminated its Agreement and Plan of Merger with JDA, adding that it expects to receive a non-refundable $20 million termination fee from JDA by Tuesday, December 9.
On November 6, i2 said its stockholders voted to approve the proposed merger with JDA, with the number of shares voted in favor of the merger representing more than 80 percent of the total shares outstanding and more than 99 percent of those voting shares in favor of the merger. But according to an i2 statement issued that day, i2 received a written proposal from JDA to amend—or lessen—the common share consideration in the merger agreement below the $14.86 per share price. And after reviewing this proposal, i2’s board of directors deemed this proposal was “not in the best interests of i2’s stockholders to pursue it.” This course of action left i2 to conclude that there was no real assurance the deal would be closed as stipulated in the merger agreement, according to i2—leading to this announcement about the deal being tabled.
If the deal had gone through as planned, it would have represented the largest acquisition for JDA since its May 2006 acquisition of Manugistics for $211 million. JDA officials said in August that this “combined company creates one of the world’s strongest best-of-breed software solutions provider focused on the global supply chain for the manufacturing, wholesale distribution, retail and service industries” with a combined $635 million in annual revenues. The companies added that by combining JDA and i2, the resulting company will have significantly improved operating leverage and a strong financial position. And the near-term cost synergies identified in operations, general, administrative and infrastructure resulting from this combination are expected to produce annual cost savings of approximately $20 million, the companies said.
Also, JDA, through its original customers and those added by the Manugistics and JDA acquisitions would have had approximately 1,500 retailers and 4,500 manufacturers and retailers-distributors comprising the majority of its customer base, including the customers it would have gained through i2. , JDA CEO Hamish Brewer said on an August conference call that this acquisition marks the “next logical step for JDA in its ongoing transformation and growth of the company.” He said it helps JDA become more firmly entrenched in the process manufacturing space, which it initially entered with the Manugistics acquisition as an extension of its strategy to become supply chain specialists. Adding i2 to the mix would have given JDA a presence on the discrete manufacturing side of the fence.
While JDA’s Brewer was once bullish about what i2 could bring to the table for JDA, some industry analysts told LM in August that were some factors regarding the deal that would make it unclear—at least in the short-term—how successful it will eventually be.
Bob Parker, vice president of Manufacturing Insights, said in an interview that the deal gave JDA added scale when going up against the duopoly of ERP titans SAP and Oracle, but he cautioned that Manufacturing Insights is not particularly optimistic that JDA, based on its experience with Manugistics, is going to invest significantly enough to satisfy the i2 install base.
“The i2 user base, which has been very loyal and i2 has delivered a lot of value to them over the years, were willing to be patient while i2 sorted things out, and I think there was an expectation that at the end of the process there needed to be a vision for new investment and things needed going forward,” said Parker. “But I am just not convinced that JDA is the right company. We have advised our clients to have a replacement plan in place [if needed] that they can execute. It is not a panic situation, but the long-term plans of shippers need to look at alternatives from either their ERP provider or some of the specialists that serve the needs of their industry.”
Parker also noted that while JDA has shown some vision for where they want to take some of their products for manufacturing as opposed to retail, but he said there has not been enough execution to date. JDA software is installed in a lot of SAP environments, which he said may lead some shippers to shift over to SAP Business Objects because of functional parity and integration advantages.
And in an interview with LM last week, Parker said that he had been initially leery of the i2-JDA combination for non-retail, consumer packaged goods customers, adding that a significant portion of i2’s recurring revenue comes from about 50 major customers.
“There is a bit of exhaustion in the i2 install base, because it took them three or four years to actually get it sold and then there was ‘customer remorse’ when they sold to JDA….leading to serious questions for high tech or automotive [shippers], in terms of if JDA could bring any expertise to the conversation, and based on past JDA acquisitions they had managed the install base and had not been too aggressive in reinvesting in the product itself,” he said.
Analysts also cited potential obstacles—like switching costs, human capital, time and money—with acquisitions like this that some shippers may consider too great for the incremental benefits received as part of the transaction, but that does not mean that JDA would have automatically lost customers. Instead, they suggested that i2 customers were likely to give JDA a chance, but they would have to prove itself and at least provide services that are on par with the level of expertise and talent they got from i2.
ARC Advisory Group, Director, Logistics Executive Council, Adrian Gonzalez, agreed with Parker, writing on his blog that this deal may have been imperfect from a conceptual standpoint although there are some potential positives, too.
“I don’t think this acquisition would have gone as smoothly as JDA was expecting,” commented Gonzalez. “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 TMS team, the “bread and butter” of i2, is still intact).
He added that from a financial standpoint pulling out of the deal probably makes sense for JDA (despite the $20 million penalty), saying that the credit and financial markets are drastically different today, along with the value of i2’s stock, than when the company completed its due diligence just a few months ago.
-
The deal, if happened would have been good, as i2 is strong in discrete space and JDA is strong in process space. But now its i2's turn to concentrate on next generation of SCM solutions instead of focussing on the too complex ABPP and also being flexible in pricing and allowing customizations.
BadriNarayan R.D - 2008-9-12 00:06:00 EST
View All On-Demand Webcasts
