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Investors, analysts frown on exit of Siebel CEO

Stock drops as new CEO George Shaheen provides little information on his plan; analysts smell a buyout.

Just what are the people who run Siebel Systems thinking?

That's the question on many people's minds after the software maker's board dismissed CEO Mike Lawrie on Wednesday, after less than a year on the job.

George Shaheen
George Shaheen
CEO, Siebel

On a conference call just hours after his appointment, Siebel's new chief, George Shaheen, did little to illuminate the issue. Shaheen, a longtime board member and the second person to take over as head of Siebel after founder Tom Siebel stepped down last year, talked of vague plans to renew the company's focus on "customer value." He also said he is not an interim chief.

But analysts and observers don't buy it, and now they're second-guessing the company.

"That place is a disaster," said Peter Coleman, a securities analyst at ThinkEquity Partners. "To get rid of somebody before you've given them a year to try shows there was more going on."

In Coleman's view, Siebel politics drove Lawrie's exit from the company. Lawrie is a respected and capable IBM veteran, who many saw as Siebel's best chance to right itself after being knocked off course by customer satisfaction problems and intense competition from Oracle, SAP and upstart Salesforce.com. All four companies make customer information systems for big corporations.

But Lawrie didn't replace a lot of high-ranking Tom Siebel loyalists, including Executive Vice President David Schmaier, who had longed for the CEO post. Infighting and resistance may have doomed Lawrie, Coleman said.

Others say Lawrie's ouster was a knee-jerk reaction to angry shareholders who were calling for change after disappointing first-quarter earnings. Another view is that the board may have brought Shaheen in to sell the company.

Michael Lawrie
Michael Lawrie
former CEO, Siebel

"When you pick one of your board members as your CEO, it's often not a long-term thing," said Jon Holman, who heads up executive recruiting firm Holman Group. "Statistically speaking, when a board member is recruited, it's either because a company plans to sell the company, or there's an agreement that they'll do it for 12 to 18 months or so, until the company is on an even keel, and then recruit another CEO to take over."

The question is who would buy Siebel? The company is not cheap with its $4.47 billion in market capitalization. Tom Siebel, who still owns nearly 10 percent of the company and remains chairman, would no doubt want a premium for it.

One logical buyer is Oracle. The company is on an acquisition mission and had, at one point, put Siebel on its shopping list. "Oracle will buy them if they don't turn things around," said Bruce Daley, editor of the Siebel Observer newsletter.

But Oracle is busy digesting the $10 billion buyout of PeopleSoft and the subsequent $650 million Retek deal. Siebel might be more than Oracle can chew at the moment. The fact that Oracle Chief Larry Ellison and Tom Siebel are sworn enemies could also make agreeing on a price difficult.

"It think it would be very messy for Oracle," ThinkEquity's Coleman said.

An Oracle representative said the company doesn't comment on rumors.

Analysts have long mentioned Microsoft and Germany's SAP as possible buyers. But SAP has spent years building Siebel-like products and has said it's not interested in buying companies with overlapping technology. And Microsoft is wary of going head-on with SAP and Oracle in the business applications market--something they'd have to do if they acquired Siebel.

The speculation over a buyout indicates investors and analysts are looking for something more. Few think Shaheen can accomplish what Lawrie set out to do, which was to turn the struggling company around with a renewed focus on "customer value" and a hard examination of costs and operations. Shaheen's plans sound strikingly similar to Lawrie's--a fact that elicited an unusual level of skepticism during the call.

One fund manager testily pointed out to Shaheen during the call that the company's stock dropped 20 cents after he began talking.

"I think you're getting a real-time reaction here," Barry Rosenstein of Siebel shareholder Jana Partners said.

At one point, Shaheen, who was thought to be semiretired, was compelled to defend himself and his plan.

"I can only tell you that I've stayed close to the technology community through various boards I'm on," Shaheen said during the conference call. "I've gotten closer to Siebel the last few years because I've had the time to do it. I understand the business and the company. I'm confident in my own abilities and we'll see what happens."

The shares slipped 29 cents, or about 3 percent, Wednesday to close at $8.68 a share, below Tuesday's closing price. The day Siebel announced Lawrie's appointment, the stock jumped 30 cents on the news.

The revolving door is likely to upset customers too. Companies that spend millions of dollars on the kind of software Siebel and its competitors sell don't like to have to worry about a supplier's viability.

"This is going to create amazing hay for Salesforce, SAP and Oracle," Coleman said. "As a stock analyst, I would want to tell everyone to buy a bunch of stock in those companies."

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