Nearly one year after a similar attempt, JDA Software Group announced today that it has once again signed a definitive agreement to acquire i2 Technologies.
When I first read the news, my mind jumped to recall those latest Southwest Airlines ads that exclaim: It’s On, It’s Really On!
You just gotta love the supply chain software industry.
Supply Chain Matters readers may note our previous commentary last August regarding the last acquisition event, when i2 broke off the proposed marriage. At the time, JDA had difficulty securing attractive financing in a very turbulent lending market that was in meltdown. The investors and management of i2 at the end, also decided it was in their best interests to move on, pocketing a hefty $20 million termination fee from JDA.
Interesting enough, today’s announcement indicates an acquisition value of $396 million, about $50 million higher than the previous episode, but represents less than a 10% premium over yesterday’s i2 closing stock price. A lot has changed in such a short period. For one, i2 has boosted its balance sheet and cash positions, building on the company’s previous positive $80 million litigation settlement with SAP. Rigorous cost control has led to a generation of over $42 million of cash from ongoing operations.
One now gets the sense that both management teams want to insure that this latest marriage will have all likelihood of closing. The terms of the transaction call for two different financing alternatives, one intended, and one a back-up alternative. Since roughly 79% of the acquisition monies must be financed, it seems that much of this round of acquisition negotiations were clearly focused on insuring that the transaction will not be inhibited by financing. Both financing arrangements call for up-front cash for existing i2 shareholders, which should make i2 employees more supportive of this deal than last time. In either financial alternative, owners of i2’s convertible preferred stock stand to receive $1100 per share in cash, a handsome reward for holding out. The Board of Directors for each company have given approval to the transaction.
In the briefing call, JDA senior management noted that the acquisition would be revenue accretive as early as 2010, and JDA has already identified up to $20 million in cost synergies. They also pointed to the combined total of 6000 global customers, which will no doubt provide an attractive maintenance annuity revenue stream in the coming years.
Since this is a blog dedicated to supply chain strategy and information technology developments, I will focus remaining comments on the implications of this acquisition. They are pretty much similar to those we penned during the last episode. Many questioned the lack of synergies among these two companies. The obvious business strategy synergy, which was again stated by JDA’s CEO Hamish Brewer on the briefing call, was the marriage of JDA’s market strengths in retail and process industry planning technology, with i2’s solid strength in discrete manufacturing sectors. But both business cultures remain different. i2 has been concentrating more on supporting customer-specific, highly specialized supply chain process needs. I2’s marketing boasts that 19 of AMR Research’s designated Top 25 supply chains utilize i2 software. One could argue that this software is not necessarily what one would find in a standard CD.
If you are an existing or prospective customer of i2, insist that you get briefed on the closing schedules, and long-term strategies of the combined companies, particularly support, continued innovation and product development. If you have both existing JDA and i2 applications, you should be especially interested in product innovation plans.
No doubt, other competing software providers will be knocking at your door, providing all forms of incentives to either convert platforms or seek other software services approaches. While this may not be an ideal environment to consider conversion cost options, it may pay to listen and be open-minded. It obviously helps in future discussion with the combined company.
As for JDA and i2, love is lovelier the second time around!