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Manugistic opts for reorg over buyout

In an about-face, Manugistics ditches a plan to find a suitor and is instead cutting its workforce by 30 percent and hiring a new CEO to make a go of it alone.

In an about-face, Manugistics has ditched a plan to find a suitor and is instead cutting its workforce by 30 percent and hiring a new CEO to make a go of it alone.

The struggling Rockville, Maryland-based maker of supply chain management software shifted gears over the weekend, ruling out pursuit of a deal. As previously reported, Manugistics had been searching for a buyer, following the announcement of a steep earnings drop last month.

Instead, the firm today said it will reorganize by reducing costs, changing its management team, and paring its workforce by approximately 30 percent or 400 people.

"Our No. 1 objective is to return to profitability, which we believe we can achieve in the near-term by reorganizing the company to improve our execution and streamlining the business to focus on target markets," said Manugistics CEO William M. Gibson.

To add depth and additional leadership, the company said it will recruit a new CEO. Gibson will continue as chairman.

Meanwhile, two top executives--Joseph Broderick, executive vice president of sales, and Keith Enstice, senior vice president of global consulting services--have resigned. The company has appointed a new group of executives to head global sales and services, supply chain products, and consulting services divisions.

Due to the reorganization, Manugistics expects to report a nonrecurring charge of about $60 million for the quarter ending February 28. That charge is expected to cover costs related to the write-off of equipment, the closing of certain offices, and workforce reduction.

The company last month announced it was searching for a buyer after reporting a massive $10.4 million loss, or 34 cents per share, for the third quarter ended November 30. The company's poor first-, second-, and third-quarter earnings, coupled with the squeeze from increasing market competition, led to the decision to publicly pursue a suitor.

SAP, PeopleSoft, IBM, Oracle, and J.D. Edwards had been rumored as possible buyers before Manugistic's recent change in direction.

Analysts said Manugistics had little alternative to a restructuring.

"None of the buyers came through and given the financial situation they had to announce something," said Jim Shepherd, analyst at AMR Research in Boston, Massachusetts. "They really had no choice. They couldn't just remain in limbo."

Shepherd said SAP and i2 Technologies were the two vendors reportedly speaking to Manugistics last week. Though a deal fell through, Manugistics will likely be bought soon, particularly if the company's stock value continues to drop, he said.

Meanwhile, the company must continue to compete for business with its more successful rival i2 to be the vendor of choice to customers that chose not to do business with an ERP giant. But without the marketing or sales clout, the company stands little chance of building the necessary market momentum, Shepherd said.

Also, because many firms like to get as much of their software from a single source as possible, many potential Manugistics customers have put their orders on hold to see what SAP and others would deliver. Now that most of the enterprise application vendors have products on the market, supply chain customers are starting to buy again.

However, "supply chain has way too many companies vying for a still relatively small market," said Joshua Greenbaum, analyst at Enterprise Applications Consulting in Berkeley, California. "There's too many players and it's too immature and that's the bottom line."

Greenbaum said he expects Manugistics to become "leaner and meaner" through the restructuring, with a goal of luring a buyer, most likely a supply chain software vendor, once the asking price for the company drops.

"Right now, they're a little pricey," he said.