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Siebel swallows poison pill

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Siebel Systems has a swallowed a poison pill to frighten away predators. The CRM vendor's board of directors today announced a Stockholder Rights Plan, a genteel term.

Here's the deal.

All stockholders of record as of February 13, 2003 will receive rights to purchase shares of a new series of preferred stock. The Rights Plan is designed to enable all Siebel Systems stockholders to realize the full value of their investment and to provide for fair and equal treatment for all stockholders in the event that an unsolicited attempt is made to acquire Siebel Systems.

Feeling vulnerable, are we? Siebel is not aware of any particular predator, but says the poison pill is "intended as a means to guard against abusive takeover tactics and is not in response to any
particular proposal".

But the company has been having a torrid time of late: last week it reported a whopping net loss of $394.7m for Q4 on sales down 19.1% on the year. The company maintained service, maintenance and "other" revenues, but alarmingly, software revenues plunged 37.1 per cent to $157.4m in the quarter. This suggests either extreme pricing pressure, or a lack of new business (unless Q4, 2001 was a showstopper).

Siebel's stockholder rights last for 10 years and are exercisable only if a person or a group buys 15 per cent of Siebel, or seeks to buy 15 per cent or more of Siebel Systems. In which case, all the existing shareholders, except for the stalker, are offered Siebel stock at a discount. Tom Siebel, founder of the company and a major shareholder, has nobly refrained from entering the stockholders' plan.

Poison pills are designed to make it prohibitively expensive for a predator to take over a company. But they can be seen as a defence of the mediocre. Why shouldn't Siebel be subject to an unsolicited bid? Hostile bids, abusive takeover tactics and all, are a centrepiece of what continental Europeans call Anglo-Saxon capitalism.

This keeps the boards of quoted companies on their toes and if they underperform, the hostile takeover is an efficient way of bringing in new managerial blood. And a takeover, especially a successful hostile takeover, is a good way for shareholders to realise a good price for their assets.

In conclusion, stockholder 'rights' plans are rarely, if ever, good for stockholders. Is Siebel's version any different? ®

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