Ronna Abramson
Investors Like Firm's Interest in Manugistics
By Ronna Abramson
Staff Reporter
10/25/2002 05:53 PM EDT
URL: thestreet.com
Updated from 4:13 p.m. EDT
Shares of Manugistics (MANU:Nasdaq - news - commentary) climbed Friday after the company announced Warburg Pincus will gain a seat on its board of directors, and suggested the investment firm may acquire more shares of the company's stock.
Rockville, Md.-based Manugistics appointed William H. Janeway, vice chairman of Warburg Pincus, as a Class III director to the company's board of directors until 2004. He will take the place of Stanford Business School Professor Hau L. Lee, who stepped down. An agreement between Manugistics and the investment company, disclosed in a filing Friday, also restricts Warburg Pincus' ability to broker a deal changing control of the company.
Janeway also is currently a director on the boards of software makers BEA Systems (BEAS:Nasdaq - news - commentary) , Veritas (VRTS:Nasdaq - news - commentary) , Indus International (IINT:Nasdaq - news - commentary) and Industri-Matematik International (IMIC:Nasdaq - news - commentary) . Both Indus International and Industri-Matematik are small-cap companies that make supply-chain software.
Manugistics also said it has consented to Warburg acquiring up to 19.9% of its common stock. Warburg already has spent $26.1 million to acquire 10.9% of the company's stock. A standstill agreement filed Friday with the Securities and Exchange Commission outlined a number of the deals underpinnings. Under the agreement, Manugistics will allow Warburg Pincus to have one "reasonably acceptable" director on its board as long as Warburg owns at least 10% of the company's common stock. If ownership falls lower, the director would be required to resign at the request of the company.
In a move that appears to prevent Warburg Pincus from trying to take over or sell the company, the firm agreed it will not, without Manugistics' written consent, make a public announcement or offer on a transaction that would result in a "change of control" at the company, according to the SEC filing. In addition, Warburg said it would not enter any discussions with a third party regarding such transactions and would advise Manugistics if any third party proposes a deal.
The standstill agreement runs for three years unless certain changes occur, including another entity acquiring more than 15% of Manugistics' common stock on terms more favorable than those contained in the standstill agreement.
Shares soared 78 cents, or 32.6%, to close at $3.17. Shares rose to $3.20 in after-hours trading. Analysts said they believe investors may be taking Warburg's increased involvement in Manugistics as a good sign for the embattled supply-chain management software company.
"I guess the reason would be perhaps Warburg Pincus knows something that makes them so bullish on the stock," ThinkEquity analyst Mark Verbeck said regarding the reason investors reacted so positively to the Warburg news.
But "I don't know what to make of it," Verbeck added of Warburg's new seat on the board. "They were very bullish on the stock before this quarter, and that doesn't appear to have gone well for them." Verbeck has an underperform rating on Manugistics and his firm hasn't done any banking with the company.
Manugistics shares have lost 84% of their value since the beginning of the year. The company has had three rounds of layoffs in the last year as well as two involuntary furloughs. Manugistics and other supply-chain companies such as i2 Technologies (ITWO:Nasdaq - news - commentary) have been particularly hard hit by the IT spending downturn because of their heavier dependence on large deals and stiffer competition from enterprise software makers.
Goldman Sachs analyst Chris DeBiase said he believes investors are also starting to think Manugistics shares are oversold. But DeBiase, who has a market perform rating on the stock, is not so sure. "I think the environment is still tough and they do have a risky balance sheet, given that they have more debt than cash at this point." His firm hasn't done any banking with MANU.
Manugistics currently carries $250 million convertible debt on its balance sheet, compared to $198 million in cash and equivalents. The debt matures in November 2007 but is "mandatorily redeemable upon a change of control," according to a company filing with the SEC.
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