Manugistics has said it has broken off negotiations with prospective buyers and now plans to go it alone as an independent software vendor in the supply chain market.
The move follows widespread rumours on Wall Street at the end of last year that the company was on the verge of being acquired by Peoplesoft (see VNU Newswire, 15 December, 1998). Other names in the frame were rival i2 and Oracle.
But the suprise announcement now means that Manugistics intends to re-organise itself in the hope of moving back into profitability. To cut costs, the applications supplier aims to axe 30 per cent of its workforce, or 400 jobs, while Joseph Broderick, executive vice president of client sales and services, and Keith Enstice, senior vice president of global consulting services, have both resigned.
In a prepared statement, Bill Gibson, Manugistics? chief executive (CEO) and chairman, said: "We have carefully considered our performance and the market factors that have affected us and other companies over the last several quarters. Our number one objective is to return to profitability, which we believe we can achieve in the near-term by reorganising the company to improve our execution, and streamlining the business to focus on target markets."
The firm is also looking for a new CEO, although Gibson said he will remain as chairman. Manugistics estimates the overall cost of the reorganisation will be $60 million, appearing as a one time charge in the current quarter, which ends on 28 February.
But analysts believe the reorganisation may have been forced on Manugistics. Jim Shepherd, vice president of research at Boston based AMR Research, said: "When they couldn?t find a buyer, they had no choice."
In statements made before Christmas, however, Gibson had insisted that the underlying value of the business was well above the then trading level of $12, and this could have prevented potential buyers from coming to an agreement over a price.
And according to AMR?s Shepherd, to have taken a figure that failed to reflect Gibson?s view of the firm?s value would have meant Manugistics "would have been faced with a morass of lawsuits."
The supplier?s shares took a pounding in the wake of the announcement, however, falling 32 per cent or $5 to $10.5 as investors took fright, and analysts believe that Manugistics may have signalled the start of a consolidation in a static market rather than simply being a local casualty.
AMR?s Shepherd explained: "The short term elimination of a competitor to i2 is not good. There?s a real danger the financial boys will take the view that this is a consolidating space."
Elsewhere, i2 is quietly confident that it will at least meet market expectations. Its results are due on Friday and a spokesperson said: "We don?t see any slowing down in the market."
But as to whether Manugistics can recover from its precarious position is a matter for debate.
Chris Elliott, Manugistics? director of marketing for Europe, the Middle East and Africa region, said the company has been hit by a variety of factors over the last 18 months.
"We started to invest in people geared to creating products outside our core consumer goods skills just at the time SAP made similar announcements. The cutbacks are all in areas of research and development that no-one knew about, where we thought there was an opportunity. In Europe, the hit is less than five per cent," he said.
But he agreed that i2?s superior marketing had hurt the organisation, although he claimed this was restricted to the US, where Manugistics generates 65 per cent of its revenues.
"Sanjiv (Sidhu, i2?s CEO) is a brilliant marketeer, I take my hat off to him. We accept we have a vision and execution problem, but it?s not the same in Europe," he added.
Despite the problems, Elliott remains optimistic, however.
"Look, $60 million is the cost of the screw up. We?re focusing on reassuring customers that support is intact, we?re continuing to deliver, and that our echain initiative is delivering value, which it is," he said.
All the same, Manugistics has left itself with little room for further error in the short term, and management is likely to find it difficult to persuade its top talent to stay with the company.
AMR?s Shepherd concluded: "There?s a lot of stock options under water at the moment, with a lot of people looking down the drain." Elliott also conceded: "We have a lot of internal PR to do to reassure our best people it is worth sticking with us."
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