Siebel Shareholders Demand Action
Siebel Systems CEO George Shaheen today outlined his plans for growth to a group of demanding investors during the company's 2005 annual stockholder meeting. Shaheen also announced in a letter to stockholders that the company would begin paying them a quarterly dividend of 2.5 cents per share. The dividend, the first in Siebel history, will be payable on July 15 to shareholders of record on June 30.
"There's been a lot of rumbling by shareholders that they wanted Siebel to find ways to increase shareholder value, and I think this is a clear response," says Denis Pombriant, managing principal of Beagle Research Group. "It's a very well-considered, broad-base response that isn't simply a one-time thing, but a program that addresses many of the concerns that shareholders have expressed. So from that perspective it's a very powerful message to the shareholders."
During the meeting Shaheen reinforced his operating priorities listed in his letter, including improving financial performance, increasing revenue generation, reducing costs, engaging in focused investments, completing strategic acquisitions, and transparency. All eyes have been on Shaheen, a 10-year company board member, since former CEO Michael Lawrie resigned two months ago following the company's sub-par, first-quarter earnings. "I share your sense of urgency to improve financial performance and shareholder value," Shaheen wrote. "I believe the best way to build shareholder value on a sustained basis over time is to deliver improved performance through consistent revenue and profit growth."
The company also announced its plan to release what Shaheen referred to as a component-assembly CRM framework offering. The solution, which is built on J2EE and .NET, is scheduled for release this summer. Chairman Tom Siebel, former Montana Governor Marc Racicot, and James Gaither, a managing director at Sutter Hill Ventures, were reelected to the board of directors. Two additional independent directors will be added to the board in the coming year.
To increase revenue Shaheen contends that the company is simplifying its stateside sales and sales support organizations "from an overly complex, matrixed organization to a more nimble and effective geographic organization using industry verticals to touch the customer," which the company is implementing in stages. Additionally, he has designated "an executive sponsor to every significant transaction in the pipeline forecast."
The component of Shaheen's plan to reduce costs includes cutting $14 million in quarterly costs. While Siebel decreased its quarterly cost structure by $21 million in 2004, Shaheen maintains, the company has identified an additional $10 million in quarterly cost cutbacks it expects to have in place by year's end. The company's immediate-term goal for an operating margin "ideally by the end of 2005," stands at 15 percent, while the longer-term goal is 20 percent or more. Martin Schneider, enterprise software analyst at The 451 Group, says that while there is a substantial amount of costs to be driven out, the company must maintain steady, consistent revenue to do that. "They can't have those kinds of up and down quarters that they've had over the past year," Schneider says. "No one's ever going to say, we don't want to cut costs, but in Siebel's situation it's integral that they actually do it."
Investors want answers now. During the meeting some decided to take the opportunity to relay their frustrations. While Shaheen maintains the company is looking to acquire companies, particularly targeting opportunities in core and hosted CRM, BI/analytics, and verticals, one shareholder asked whether the company is for sale, because it has retained Goldman Sachs as an advisor. Shaheen insists Goldman Sachs was retained for two purposes, "to help us work through some complex issues around our capital restructuring and our operational performance."
Another attendee directed her statement to Siebel, stressing her concerns regarding the company's financial health. "Mr. Siebel, many of us in this room purchased a number of shares because of your vision and our belief in your genius. I have watched you meticulously, in the last few years, take the options that you have and on a regular basis sell them at a great profit, to yourself, and I have watched the shares plummet from something like 100 to--you have not even been able to hold 10."
Shaheen responded, not Siebel. "I accept your statement and I am sure Tom heard it, but this is a session designed for management to interact with the shareholders. It is not intended to be personalized to any one member of the board or management."
His message did not go over well. "First, I'd like to thank you for the two-and-a-half cents. Now, I'd like to give you a couple of cents back," said Herbert Denton, president of Providence Capital, and one of Siebel's more vocal shareholders. "Mr. Shaheen talks about growth, Mr. Lawrie talked about growth, previous CEO Mr. Siebel talked about growth. So far there has been no growth. You claim Siebel has not lost market share, yet even after investing $1.1 billion in R and D, the latest quarter's result's were $298 million in total revenues, down from '04's $329 [million], down from '03's $332 [million], down from '02's $477 [million], down from '01's $598 [million].
"You seem to be walking up a down escalator," the investor said. "Curiously, both SAP and Salesforce.com's revenues are going up. Simply put, your claim of not losing market share is not plausible to me. Siebel is a decaying asset and this board, in my view, needs to seek out [strategic] alternatives."
According to Schneider, however, "It's really about how can they make the company a better company, given the fact that Siebel's never going to do the business it did in 1998, 1999. There are a lot of companies that are out there in that position. It's not just Siebel, but Siebel just seems to be more in the spotlight, and made so much more at one point than all those other companies that wanted to be Siebel. They're doing a lot of right things, but the thing is, will they actually execute on them--and that's going to be the difficult thing."
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