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Sybase could see further pressure from its largest shareholder, Sandell Asset Management, as the California-based software company is likely moving too slowly in its review of strategic alternatives, a source familiar with the process told dealReporter.
The sources added that Sybase hired Merrill Lynch soon after Sandell requested changes at the database company.
In an October letter, Sandell provided a list of recommendations for Sybase to explore as it attempts to increase shareholder value, including the IPO and spin-off of the mobility segment, share repurchases and/or the sale of the company in whole or in part. As of 29 December, Sandell additionally said it would seek to elect three members to the board at the upcoming shareholders’ meeting to ensure the company takes action to improve its stock price.
While Sybase hired Merrill soon after the October letter, the source said he was not aware of Sybase’s board proceeding with any process yet. John Chen, Sybase CEO, has publicly said for years that he is open to considering strategic alternatives, both private equity and strategic, but increasingly, people familiar with the company are questioning his intentions, the source noted. Therefore, it is unclear how deeply Chen is committed in pursuing a strategic review process, he added.
In an interview with this news service in September, Chen said he was happy to listen to offers that are the most accretive to shareholders. ”If someone comes and says I can deliver more shareholder value than Sybase can as a stand-alone company, I can take this offer to the board to look at,” Chen noted.
An industry banker said he was unaware of Sybase beginning any formal process -either trying to dispose of a business or businesses or any type of recapitalization. A large shareholder also said he had not heard of any formal process being considered.
Sybase can be broken down into two businesses; a higher growth wireless data business and a slower growth, high free-cash-flow generating database business, the source said. While Oracle, Microsoft and IBM all have the financial resources to buy Sybase in its entirety, he is unaware of any of the big database companies being in discussions with the company. It is unlikely that an acquirer would want to buy the entire company with the likely outcome being for the company to be sold piecemeal.
The industry banker noted Sybase should have hired a banker because it is in a tough strategic position since it has a mobile data business which is growing nicely and a dying database business which generates a lot of cash. ”It is not a pretty business” as Sybase has three large competitors in the database business - Oracle, Microsoft and IBM — with Sybase being a fourth competitor in an industry that really only needs two, he added.
The source said he believed the transaction would pass regulatory muster if either of the big three database players were to acquire Sybase. With below 10% market share, having Sybase removed from the market would not materially impact the competitive dynamics of the industry, he said.
According to a 2 January Merrill Lynch report, Sybase is estimated to generate USD 202m in free cash flow for 2007, which the Merrill analyst increased from USD 182m in an October report.
Sybase has a market capitalization of USD 2.3bn with USD 691m in cash and short-term equivalents at the end of the September quarter. Sybase also has a USD 460m convertible subordinated note outstanding.
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