Siebel shaken by new shareholders

According to the Wall Street Journal, Siebel's status is growing more uncertain as shareholder activists such as Carl Icahn and others are increasing their stake in Siebel, determined to force the company to pay out some of its $2.2 billion cash hoard to buy back shares, or sell out to the highest bidder. At the same time, Fidelity Investments, which often takes a pro-management position, is selling shares. Siebel's stock price has climbed 12% in the past seven weeks as speculation grows.

For its part, Siebel management is not making welcoming noises to the dissidents.

Siebel's new chief executive, George Shaheen, and Chief Financial Officer Ken Goldman so far have rebuffed calls to distribute Siebel's cash through a stock buyback or dividend. The company this month said in a Securities and Exchange Commission filing that "potential opportunities have recently been presented to us," but provided no details, and said none of the offers had been considered by Siebel's full board of directors. Representatives of Oracle Corp. and Siebel, which has a market value of about $5 billion, recently discussed a potential acquisition, but talks aren't active, according to a person familiar with the matter.

As I've said in the past, Siebel's problem is that it is stuck in the middle. At the high end, SAP and Oracle have credible offerings that keep their customers largely out of reach of Siebel these days. At the low end, on-demand vendors such as Rightnow and Salesforce.com offer a less expensive and much less painful alternative. Siebel responded in 2003 by acquiring on-demand CRM vendor Upshot, renaming the offering Siebel CRM On-Demand. But its hard to do two things well at the same time.

Some analysts, such as Peter Coleman at ThinkEquity Partners, are speculating that Siebel's best path might be for management to do a leveraged buyout, take the company private, and radically restructure its business model, say, to focus more strongly on the on-demand business. Such a move, however, would no doubt bring forth competing bidders, with deeper pockets, that would put Siebel in the hands of someone with different ideas.

It doesn't look like the situation with Siebel will be resolved quickly, and that's not good for Siebel or its customers. The protracted Oracle/PeopleSoft battle showed that there's a limit to what managers can do to influence the outcome. As one PeopleSoft executive told me right after Oracle took control, "I used to think that if you built a good product and took care of your customers, everything would work out in the end. But I forgot about the arbitragers."

It's too soon to tell what the outcome will be for Siebel, but it appears that staying the course is not an option.

Update, May 27. Siebel has just disclosed that it is putting in place additional severence pay and health benefits for employees in the event that the company is taken over. Analysts are divided over whether the motive is defensive--to make Siebel more expensive to a hostile acquirer, or whether it is intended to ensure that key resources stay on board--in other words, to facilitate the transition to a new owner. Either way, what's interesting to me in this that Siebel is worried about losing key employees. This is consistent with our recent findings at Computer Economics that the IT labor market is tightening. Siebel has some of the best people in the CRM marketplace, and I'm sure Oracle, SAP, and Salesforce.com would love to scoop up some of them.

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