Category: LBO

Wounded Bear

Brenon Daly

Given all the hardships (self-inflicted and otherwise) that have hit Bear Stearns over the past two months, we thought we found some good news for the investment bank earlier this week. Leafing through the paperwork around Borland’s sale of its CodeGear division to Embarcadero Technologies on Wednesday, we saw Bear listed as one of the advisers to CodeGear, along with boutique firm GTK Partners. (Embarcadero, owned by the sharp-penciled buyout guys at Thoma Cressey Bravo, didn’t use a banker.)

So does this mean Bear, whose rescue sale to JPMorgan is set to be voted on at the end of this month, stands to get a payday from the CodeGear engagement? Unfortunately not. Like so much happening at the bank these days, they’re in line for scraps. (For the record: Bear Stearns ranked 17th in our league tables last year, advising on nine deals collectively valued at $8bn.)

Bear Stearns had a long connection with Borland, particularly during the days of former CEO Dale Fuller, who was replaced in 2005 by current chief executive Tod Nielsen. (Bear banked Borland’s $185m acquisition of TogetherSoft and its $24m acquisition of Starbase, both in October 2002.) So it was natural for Borland to tap Bear when it decided two years ago to shed its CodeGear division as part of a step out of the developer tools business. To put it charitably, the Bear-led divestiture was fitful. A source familiar with the divestiture says the division was pulled out from under several possible acquirers, leaving the market a bit soured on the asset as the process dragged on for months.

Whatever the case, Borland pulled Bear off the deal last October and engaged boutique bank GTK Partners. (Why GTK? Managing director Ali Tabibian had previously worked with CodeGear CFO Cynthia Mignogna on the 1999 sale of Infoseek to Walt Disney. Mignogna also served as CFO there.) So GTK will be pocketing the majority of the advisory fee, with Bear getting a very small portion of that as part of a ‘tail.’ It’s just another sad event as the swan sings for Bear.

i2: The king watches an auction

Brenon Daly

Nearly three years after getting re-listed on the Nasdaq, i2 Technologies may well find itself taken off the exchange again. While accounting mistakes got the supply chain software vendor bumped the first time, a sale of i2 is likely to end its 12-year run as a public company sometime soon. Having shopped itself for a year now, i2 said last week there are ‘ongoing talks’ with two interested parties.

In our view, a far more important sign that the company is ready to sell is the fact that it knocked founder Sanjiv Sidhu from his spot as chairman of the company. Removing Sidhu is key to getting any deal done, in our view, because few software executives have dominated their companies to the degree that Sidhu has at i2. He had served as the company’s chairman for two decades since cofounding i2 in a Dallas apartment. He only gave up the CEO title three years ago. (Not even an SEC investigation into shady accounting – and a subsequent $10m fine paid by i2 – could dislodge Sidhu from his seat of power earlier this decade.)

Of course, any deal for i2 still has to flow through Sidhu. He owns 5.5 million, or 26%, of the company’s 21.4 million shares outstanding. And while he may be content to let the company’s ‘strategic review’ drag on, other large shareholders may not be as patient. Hedge funds BlackRock and SAC Capital Advisors both own about 1.9 million shares of i2 and are likely to push the company to get a deal done. (JPMorgan is advising i2 in the process.) Despite the tight credit market, we still think i2 will get snapped up by a private equity shop rather than a strategic acquirer.