FileNet Corp.’s Costa Mesa headquarters is expected to become a major center for one of IBM Corp.’s software groups.
Big Blue’s $1.6 billion acquisition of FileNet isn’t expected to close until the fourth quarter,and some have speculated that rival bidders for the software maker may emerge.
But IBM is moving ahead with plans to turn FileNet’s Costa Mesa campus into the headquarters for its unit that produces enterprise content management software, said Lee Roberts, chief executive of FileNet.
The move would combine FileNet’s 1,700 employees with IBM’s enterprise content management workers, giving Costa Mesa oversight of about 4,000 employees, Roberts said. IBM has about 340,000 workers in total.
The move also would give FileNet’s team responsibility of roughly $850 million in annual revenue. FileNet’s yearly sales are expected to hit more than $450 million.
“This is going to be huge,” Roberts said.
Roberts declined to say who would head the unit. But he did say that “100% of the management team is staying.”
He expects IBM to make an announcement on the unit’s leadership once the acquisition is closer to being finalized. IBM announced its plan to buy FileNet on Aug. 10.
IBM gets a leg up in the fast-growing enterprise content management market with its FileNet buy.
FileNet was among several companies selling the software, including EMC Corp. and OpenText Corp. IBM’s software package is seen to be weaker than FileNet’s, according to some analysts.
Enterprise content management software is used to find, sort and retrieve unstructured,not digitally captured,documents and structured digital documents. That includes the records from Word documents, PDFs and e-mails.
FileNet has gone a step further, folding in what’s called business process management software,essentially using all the data electronically to automate and speed up transactions, such as mortgage loans.
The software package, called P8, now makes up about 90% of FileNet’s sales. IBM said in a regulatory filing it has no plans to scrap any FileNet products.
Narrow Premium
Shareholders of FileNet, one of Orange County’s oldest software makers, are set to get $35 a share in the deal, just 1% more than the closing price the day before the announcement.
The narrow premium fueled speculation that a rival software maker could emerge to top IBM’s bid for FileNet. Shares of the company traded at $35 at a recent check.
While Steven Ashley, an analyst with Robert W. Baird & Co., didn’t say that a bidding war was on tap, he believes IBM’s offer was a “bit low,” according to a research note.
Ashley raised his target price on FileNet in the wake of the IBM deal to $38. That values the software maker at $1.75 billion.
Ashley said FileNet is flush with cash, has solid sales growth and is just beginning to reap big benefits of its P8 software.
Others rumored to be interested in FileNet include database software maker Oracle Corp. The rivals will have to work harder to compete in the enterprise content management software market if the IBM buy of FileNet closes.
Citigroup Inc. analyst Brent Thill doesn’t expect to see rival bidders for FileNet.
“We recommend investors take profits,” Thill said in a report.
If there was another company interested in buying FileNet, the offer price likely would be $40 a share, Thill said. He expects Oracle “will find another path to take.”
Three other potential bidders,Hewlett-Packard Co., Symantec Corp. and EMC,are either digesting other acquisitions or already have beefed up their enterprise content management software, Thill said.
When asked whether others had bid on FileNet, Roberts said, “that information will be forthcoming when … we issue a whole series of financial reports over the next two weeks, three weeks.”
Roberts also said the company had been working with lawyers and consultants on a potential sale during the past few months, though he wouldn’t give specifics.
Viewing in Context
As for the slim premium to its stock price, Roberts said FileNet shares had spiked recently and that the buyout price should be viewed in the context of the past 60 days.
Shares of FileNet were trading at $26 in June before a run-up in July.
“Buyers don’t buy a company based … on the day they make the purchase,” Roberts said. “Our board has a significant responsibility to shareholders to make sure we’re going to get the right price for the company.”
FileNet was viewed as an increasingly attractive takeover target after a breakout second-quarter that beat profit and revenue estimates.
FileNet is OC’s third-largest software company by sales, according to Business Journal research.
It was founded in 1982 by Ted Smith, who was chief executive until Roberts took over in 1998. Smith still is a FileNet director.
