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Friday, August 04, 2006

Software M&A and Buyout Targets


After doing some searching around after yesterday's MRO Software (MROI) buyout from IBM (IBM), there are some interesting thoughts around as to who may be the next acquisition candidate and who may not.

Cognos: In Play or Not?

The Globe and Mail has an article that esentially says Cognos (COGN) is not in play and wants to go it alone, although they could look for deals to increase exposure on their own.

The link is HERE

Here is a brief quote from the Globe and Mail atricle:

"I get probably five to 15 pings of rumours a week. But that's all they are is rumours. In the public company space these days you really only make formal contacts if you're bloody serious," he said. "Until that happens, and it hasn't happened because we're not in play, until it happens on an official basis we just have disciplined ourselves to ignore the rumours because they pop up every week. The only thing we can do is run the business, and make the stock as expensive as we can possibly make it."

Our take on this is somewhat mixed. Some executives are never aware that a hostile bid is coming, and if the executive really wanted to drive his stock he would have said "we have received offers." A deal for the time being may not be easy to get shareholders to go along with too. COGN had lost significantly for shareholders by falling from over $40 to almost $25. Shares currently sit at $31.40, up 1.2% after the open. The stock trades with a P/E of 24 and if you interpolate the fiscal Feb-2007 and fiscal Feb-2008 projections you get forward P/E ratios of 21.5 and 18.1 respectively.

The company is in business intelligence and corporate performance management software services. Even down from the $40+ highs it still has a $2.83 billion market cap. IDC issued a recent report saying this business intelligence space grew 25% last year, and recently Microsoft has taken steps to enter the space. Business Objects (BOBJ) is also in the space, but trades at over 30 times earnings and has a market cap of about $2.2 Billion.

Neither one of these names are currently on our BAIT SHOP formally, although they have been on a watch list on and off over the last 2 years. We'll have to wait to see if these are going to be in play down the road or not.

Borlan (BORL) is also a name that has been around in takeover hopes for literally years. Just last month the CEO reportedly said the company would be announcing a sale of its development tools business to a private equity group. BORL has been stuck in a trading range for 18 months and shares are down significantly from over $11.00 in the last 2-years.

Tibco Software (TIBX) is also a name that has been around as a takeover hopeful for years as well. Just last week Cramer on "Mad Money" noted that it could be an eventual takeover name. TIBX trades witha $2.2 Billion market cap and has a 24.5 P/E. Cramer also noted FileNet (FILE), BEA Software (BEAS), Wind River (WIND), and Websense (WBSN) as hopefuls.

It should be noted that BEAS has been a name thought to be a takeover target on and off for almost 10-years now, and that is no joke. It was said that Sun Microsystems (SUNW) was going to buy them in the late 1990's, then that IBM (IBM) wanted it on probably half a dozen occasions. BEAS has a $4.3 Billion market cap and trades at roughly 30-times earnings. If someone wanted to acquire BEAS it would probably take a $14.00 bid or more, and its shares are currently at $11.20. It has been a BAIT SHOP member since well under $10.00, but was cut frm a full position to a half position at $13.25 after it was evident issues were around in the sector and the market and that there was no impending deal. It will have to drop back down before a review comes back to add more to a full position again.

Jon C. Ogg
August 4, 2006

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