On August 10th, JDA Software announced its intention to acquire i2 Technologies at an estimated cost of $346 million. Since that time, much turmoil has occurred in financial markets and the economy. Today, a press release issued by i2 Technologies indicates termination of this merger agreement.
In my past posting back in August, More On What You Need to Know About the Pending i2 Technologies Acquisition, I highlighted some consensus industry analyst views regarding this acquisition, and urged i2’s current and prospective customers to make their own individual assessment as to the impact of this acquisition on their technology needs. At the time, industry analyst views pointed to a potential lack of synergy among the two companies and a fear of decreased product innovation.
If you have been following the latest ongoing developments related to the proposed acquisition, JDA Software informed i2 management on November 4 that due to the adverse effects of the continuing credit crisis, available credit terms would render the acquisition cost too expensive without a significant reduction in cost for JDA, and requested a re-negotiation of the purchase price. The next day, the management and board of i2 shrewdly went ahead with a meeting of i2’s stockholders to accept the original acquisition proposal and further indicated that i2 was ready, willing, and able to close the merger no later than November 10. JDA Software then requested additional time to arrange some form of modified financing. Apparently JDA came to a revised decision on the value of the acquisition, and i2 is now demanding its $20M termination fee from JDA.
What does all of this mean? If you are an existing or prospective customer of i2, you need to continue to do your due diligence. There is no question that i2 has previously been one of the premiere innovators both in standard as well as customized supply chain technology. The investors in the company were obviously motivated towards this acquisition option in order to receive a financial return for their investments in innovation these past years. The morale among existing i2 employees also must be considered, since one could speculate that its not at its peak. Employees had very mixed reactions to the proposed JDA acquisition. Many were anticipating a cash-in of stock-options for their efforts in sustaining the company. Some employees probably packed their belongings only to discover their work must continue.
With these latest developments, the senior management of i2 must again evaluate strategic options, especially in light of the current economy. Those options are to either re-initiate talks with other potentially interested acquirers, or decide to move-on with operations until the financial climate improves. In either case they need to find a way to appease existing investor’s debt, along with employees concerns. In my view, cash or viability should not be an immediate issue. At the end of Q3, i2’s cash balance was $228M, a hefty sum for many software companies today. The $20M termination fee from JDA, coupled with a previous litigation net settlement of $80M with SAP, should be able to cushion the company, provided existing cash flows from operations can continue amidst a very challenging economic climate.
It would be great to look to i2 Technologies to be an ongoing player and continued innovator in supply chain technology. I believe that there is truth to the statement from i2’s CEO Dr. Pallab Chatterjee that in these challenging economic times, supply chain management will be crucial to efficient business operations. The decision of i2 being a player will be determined by the forces of i2’s senior management, its current employees and its customers.