i2 Still On the Block, But Considering Alternatives

Supply chain software maker i2 Technologies Inc. (ITWO) remains on the block, though its board of directors has extended the time frame for its review of strategic alternatives. Originally expected to be completed by the end of January, i2 on Thursday said the review process generated "credible interest in a variety of strategic options," and as a result the board agreed to prolong the review so it could thoroughly consider all options. It did not provide a timetable for when it expects the review to conclude.

In a research report Friday, JMP Securities analyst Patrick Walravens speculated that i2 is still trying to evaluate whether any bids it has received fairly value the company.

"We think i2 may have received a low-ball acquisition bid representing only a modest premium," Walravens wrote. "In a sale process, the ultimate value of a company may be determined not by a sum of the parts or a comparable companies valuation but rather what a strategic buyer is willing to pay."

A low bid may not be acceptable to i2 chairman Sanjiv Sidhu, who owns roughly 21% of the company, Walravens said. The strategic review committee must proceed carefully to ensure that any sale it recommends would be approved by a majority of shareholders.

Closing Friday $13.00, i2 Technologies has a market capitalization of $279 million. - David Shabelman

See Feb. 7 statement from i2 Technologies
See Oct. 5 story from Tech Confidential

Comments

[SHARON T.:]

i2 has turned-around financially and has been making money for 11 consecutive quarters albeit not consistent with analysts' expectation quarter by quarter.

When a software company like i2 went through a turn-around, the inititial stage was bound to be choppy due to a few factors such as the new business model, the maintenance/services revenue, the new products on new delivery platform....etc.

i2 has gone through this period of painful transformation, it has all its products on new SaaS platform, this alone is 2-3 years ahead of its bigger ERP competitors Oracle and SAP.

Due to the complex nature of Supply Chain Management system, i2 realized that it can't just sell customers its software and expect them to rip the real benefit out of it like ERP software products therefore, i2 has re-organized its entire company to become a very efficient provider of SCM results company. It consults, implements and it even runs the SCM operation for its customers.

i2 currently delivers its products/services in all three forms that meet the different buying preferences of its customers.

This is probably the most "misunderstood" company by Wall Street analysts. Most analysts follows i2 lack the understanding of its new business model which is very different from the ERP software providers like ORCL and SAP.

A so called "5 star analyst" estimated i2 to book new business of $47 millions in Q4-07, it turned out i2 booked $82 millions and it was a 3 year high in terms of quarterly bookings.

What made this $82 millions booking so special was in the mid of several of its major stockholders(all hedge funds) openly demanded selling the company due to its inconsistent performance in 2007. The Wall Street analysts(Patrick Walravens of JMP Securities and James Friedman of Susquenhana to name a few) made it more differcult for i2ers to sell by talking about their own wild speculations since i2 treats them just like anyone else, absolutely no inside information or preference treatment.

The inconsistent errning in 2007 was caused by its former CEO Michael McGrath, a chain-saw cost cutter having no experience of growing new business, now that he's gone for 6 months and i2 is having its best bookings in 3 years.

Going out of Q-4 07, i2 is having a good pipeline which was entirely different than 12 months ago under CEO McGrath, i2 is currently run by its interim CEO Pallab Chatterjee, a seasoned SCM expert and an executive who can execute. Chattterjee could become the new CEO if i2 is not sold in the near future.

Among potential bidders... SAP, IBM and ORCL make the most sense, here's why...

SAP, the number 1 competitor of i2 due to its size but for real complex SCM deals, i2 always won due to its superiority in SCM products and services. i2 is currently suing SAP for infringement of 7 SCM patents and i2 is dead serious about winning this lawsuit. By buying i2, SAP instantly becomes undisputable SCM leader and avoid the potentially disasterous loss of lawsuit, i2 is making 200-300 claims in this lawsuit. The cross-sale opportunity is huge for SAP with i2's more advanced products and services organization in India.


IBM, a long time i2 partner and i2's best customer by implementing lots i2 solutions worldwide over the past 10 years. IBM is the host of i2's on demand Logistics/Transportati... Matrix with increasing customer list like Costco and many top retailers of the nation. Buying i2 fits the expansion of IBM's software portfolio strategy nicely.

Oracle, in competing with SAP on many fronts, buying i2 will strengthen its SCM offering tremendously and win all sizes of
business deals and the cross-sale potential is huge. The i2 patent infringement lawsuit against SAP will help Ellison pinning SAP down quite well.

2008 Feb 16 02:08 PM