Oracle's Bid for Hyperion: Vote No, Says Roth Capital

|
 |  Includes: BOBJ, COGN, HYSL, MSTR, ORCL
by: Eric Savitz

Roth Capital’s Nathan Schneiderman yesterday issued a flurry of notes on the business intelligence software sector. His most aggressive call: advising Hyperion Solutions (HYSL) shareholders to vote down the company’s agreement to sell itself to Oracle (NASDAQ:ORCL).

“We can’t agree with Hyperion’s board of directors and hope against hope that shareholders vote this deal down,” he wrote:

Hey, we’re all for making a quick buck, don’t get us wrong - what we don’t like is leaving most of the spoils on the table for [Larry] Ellison et. al. Ah, how we miss the days when [former PeopleSoft execs Ron] Conway and [Kevin] Parker struggled so valiantly and when [Seibel Systems founder] Tom Seibel battled for the last red cent; for reasons we can’t fathom, Hyperion’s giving up without a fight.

Schneiderman offers an alternative prescription: Cut headcount by 10%-15% (”painful,” he says, but less than the 30%-50% cut that is coming with an acquisition by Oracle); raise maintenance fees; then borrow some cash and buyback $1 billion of stock, taking out a third of the outstanding shares. The result, he says will be EPS above $4 a share.

He thinks it's a better option than selling to Oracle. “Who’s the winner in this deal? Customers, employees, shareholders? The answers are no, No and NO! We feel Oracle’s getting the deal of the century and the consideration given other stakeholders comes up short.”

Meanwhile, Schniederman sees opportunity in other business intelligence shares.

  • MicroStrategy (NASDAQ:MSTR): Price target raised to $155 from $150; estimates also raised. He says that while investors bid up Cognos (COGN) shares after announcement of the Hyperion deal, they “missed that MicroStrategy should benefit as well." He boosted his 2007 EPS to $6.25 a share from $6.20; for 2008 he goes to $7.40 from $7.20.
  • Business Objects (BOBJ): Maintains Buy rating and $46 target; asserts the stock is “one of the most compelling bargains in the sector by far.” He adds that “the resume flood has already begun, as some Hyperion employees scramble for a new home; there is talent galore, and Business Objects will surely snare some.”
  • Cognos: Raising estimates. “We think that Cognos will now have a much easier time selling its Planning solution, particularly to SAP’s application customers and those more aligned to the Microsoft (NASDAQ:MSFT) stack.” Raising 2008 EPS to $2.10 a share from $2.03.
  • In yesterday’s trading:

  • Hyperion was up 4 cents at $51.63.
  • MicroStrategy was up $1.57 at $125.44.
  • Business Objects was up 32 cents at $35.16.
  • Cognos was down 10 cents at $40.32.