i2 shareholders push for sale

SAC Capital disclosed on Thursday, Oct. 4, that it has an 8.9% stake in Dallas-based i2, and noted in a regulatory filing that it considered the stock undervalued and that shareholder value would be best increased through a sale of the company. News of SAC's stake follows a disclosure last month by Amalgamated Gadget that it owns 17.6% of i2 shares; the investor also recommended a sale of the company.

In a research report Thursday, JMP Securities analyst Patrick Walravens said he believed i2 was actively considering strategic alternatives and predicted it would fetch $21 to $22 per share in an acquisition, based on the average multiple seen in recent software deals. On Friday Susquehanna International Group LLP analyst James Friedman also said that a price of $22 per share would be reasonable.

While such a price would be well above i2's $16.70 per share closing price on Friday, when it climbed 2.7% on mounting takeover talk, it would still be well shy of its 52-week high of $27.46.

Friedman said that sharp drop in value reflects a degree of uncertainty and the company's inconsistent business strategy and performance. I2 last year suffered a steep drop in annual revenue to $279.7 million from $336.9 million the year before. It also lacks a permanent successor to former CEO Mike McGrath, who resigned over the summer, and has hurt its own market position with a lack of consistency in its product base.

"They went from being a provider of software, to services, to solutions, and then back to software," Friedman said. "They just don't seem to have any continuity in their message."

Aside from internal struggles, he noted that i2, as a niche software provider, finds itself in a similar predicament as middleware software maker BEA Systems Inc., which earlier this week became the subject of takeover talk after activist investor Carl Icahn raised his stake in the company to more than 13%. Small specialized software makers are finding it increasingly hard to compete with larger diversified players like Oracle Corp.

"They are kind of like the rust belt of the U.S. technology industry," Friedman said. "In an industry that has matured, they haven't changed much."

There was, however, no word of any software company actively interested in buying i2. Asked about potential buyers, analysts cited the "usual suspects" like Oracle and SAP AG, but said they did not know if those companies might be interested.