Rants 3 "Will this idiot ever give up?"
Industry Consolidation
We are involved in an industry of titans. The following is an article that talks about some of their recent shenanigans:
BMC Software's Latest Deal Rocks Industry's Big Boats
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
HOUSTON -- Max Watson built BMC Software Inc. to $1 billion in
revenue by deftly avoiding clashes with the two giants of the
systems-software world. But now, a major acquisition is threatening to disturb the peace.
By making sure his company's software always fit with the grander designs of Computer Associates Inc. and International Business Machine Corp.'s Tivoli Systems Inc., BMC remained in a fast-growing and relatively safe niche of making software that helps other programs work faster or better.
Earlier this month, however, BMC agreed to buy rival Boole & Babbage Inc. for about $900 million in stock. The deal would catapult BMC to the third-largest supplier software for managing computers and give it key software needed to move out of its niche.
A collision with BMC's two competitors now seems inevitable analysts say. "If BMC can pull off this merger, it will be breathing down the necks of CA and Tivoli," says Bill Gassman, an analyst at researcher Gartner Group Inc.
If a clash does come, it won't be a David-and-Goliath battle. BMC has
used its hugely profitable mainframe-software business to buy and build its way into new markets before. The 18-year-old company began life as a small, direct marketer of tools that optimize mainframe databases. Today,BMC claims gross-profit margins of 90% -- better than Microsoft Corp.
Under Mr. Watson, soon to be 53 years old, BMC has rapidly pushed beyond mainframes into the open-systems world of Windows and Unix,which now contribute 25% of annual revenue. Including Boole &
Babbage, it will have spent $1.3 billion in just the last 18 months to recastitself as a software supplier that helps keep critical business-management programs running.
Mr. Watson, a former IBM salesman whose collection of old, rare maps decorates his office, has cleaned out BMC's executive ranks three times. Staffing up for its new challenge, he recruited former executives from Microsoft and Compaq Computer Corp. One of them, Robert G.Kruger, a 10-year Microsoft veteran who joined BMC in April to oversee its Windows NT activities, says the company may be small but acts much larger. "This is a place where a customer can call 24 hours a day and get a response," he says.
BMC is also building its own support network among commercial software developers and customers. In addition to developing its own software to manage popular programs by SAP AG, Oracle Corp. and IBM, it has 270 customers and commercial-software developers building elements for other programs that will be available. "We're out to get warp share -- more than twice or three times the next player's," insists Mr. Watson.
Part of BMC's fast growth comes from rewarding the company's employees for conceiving new programs. Developers who create programs receive an average 2.5% of a program's first five years' sales. The royalties stop after five years to encourage developers to come up with new ideas.
Mr. Watson says rivals will have a hard time replicating BMC's niche in developing enhancement software for products such as SAP or Lotus
Notes. "If they decide to come after us, they will have to replicate what we've done in each of the applications areas," he says.
Rivals dismiss the BMC threat. "BMC with this acquisition will cross the line from being a utility-products company to trying to be a complete, applications-management company," says Tivoli Executive Vice President Martin Neath. "I think they'll find customers are looking for more than what BMC offers."
Adds Marc Sokol, Computer Associates vice president of advanced
technology: "We don't expect to see BMC any more competitively after a
merger with Boole & Babbage than before."
Part of Mr. Watson's challenge is to expand the company's applications business at a rapid clip. BMC's current revenue from that business is less than one-quarter of the Still, Sanders Morris Munday -William C. Conroy says BMC could boost total sales by 40% for fiscal year ending March 31 and $338 million. "They're making hay," he says.
The company's stock is up 44% so far this year, closing Thursday at $47.1875, down 12.5 cents, in Nasdaq Stock Market trading.
Boole & Babbage delivers a key component-a piece of monitoring
software that could accelerate the use of BMC's application managers by corporate customers.
But the acquisition faces a major hurdle. Platinum Technology Inc. sued last week to block the deal, alleging that Mr. Watson swooped into the middle of its talks in violation of an exclusive-negotiating pact.
In documents filed with the circuit court in Wheaton, Ill., Platinum claims it has a contract with Boole Chief Executive Officer Paul E. Newton granting it exclusive rights to negotiate a purchase from Aug. 15 through Dec. 13. "We've always felt we had tough but fair competition with BMC," says Michael J. Matthews, Platinum's executive vice president of global marketing. "We would have expected that during due diligence they would have found this." The court will take up the matter Dec. 9. BMC declined comment on the suit.
The applications focus has helped BMC win customers such as FDX Corp.'s Federal Express, Continental Airlines and Browning-Ferris
Industries Inc., which use it products to make sure business applications such as package tracking and reservation systems are running at optimal levels.
BMC's early support of the big-business management programs supplied
by Germany's SAP, Baan NV of the Netherlands, and PeopleSoft Inc.,
Pleasanton, Calif., also has given it an entry into what could be a new market for application-management packages-electronic commerce. "We think we're in the front of a pretty good wave," Mr. Watson said in a recent interview.
End of WSJ story
What does this mean to you and I?
- They are big
- They have lots of money
- They are looking to grow
- They are willing to make strategic purchases that will prevent the other players form getting technology.
I will bet that we will all be the proud owners of one of the stocks mentioned in the article some day. A stock swap merger would give us all a piece of a very large company that is very liquid.
My wildest dream -- a Best possible case scenario:
GLBM proves their toys work,
the bigs get in a bidding contest for our little GLOBAL.
The shareholders all make money
Mr. McCaffrey lives happily ever after, the hero we all know he is.
THE END
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