30 November 2007
The one-time darling of supply chain management (“SCM”) software, i2 Technologies (MGI: 981, NASDAQ:ITWO) announced on Nov. 1, 2007 its Q3CY2007 financial results and the formation of a “strategic review committee”. The company also disclosed that JPMorgan has been retained since early this year to assist with a “strategic review” of the business. We believe i2 could be an attractive and, under certain conditions, an accretive acquisition target for companies such as Infor or JDA Software. Alternatively, the company could survive as an independent player and command a higher valuation assuming it implements a major restructuring plan. At present, the company is caught in no man’s land – appearing to be too expensive and a poor fit for most buyers, and lacking a coherent management plan to drive the business as a stand-alone entity. [This post is an excerpt from an MGI Research Note published Nov. 19, 2007.]
Bottomline -- i2 has come a long way, and has plenty of room for further progress. In its current state, the company is stuck in neutral – unattractive to most buyers in the market, and seemingly unwilling to sell at the current or a (future) lower valuation. Without an aggressive management team driving the business forward, the company, customers, and employees will likely drift. Revenues will continue to slide, morale will suffer, and customers will tighten their purse strings until the future becomes more certain.
Introduction -- Current State of the Business
I2 faces multiple challenges: Shareholders are agitating for a sale, a CEO search is underway, and results so far this year are lackluster. At the same time, the company’s MGI benchmark scores have been improving – an early indicator that the business has at least stabilized a bit, if not progressing modestly.
Former CEO Mike McGrath departed semi-abruptly in August, with the turnaround effort unfinished. He made strides in paring expenses and focusing the business along a handful of vertical industries (consumer goods, automotive, high technology and retail). The company today bears the imprint of his tenure, and herein lays the challenge for i2.