A merger of supply chain software best-of-breeds that fell through last year was resurrected today, as JDA Software announced that it would acquire rival i2 Technologies for $396 million.
The news rings familiar to JDA and i2 customers, who heard JDA announce in August 2008 that it would take over i2 for $346 million. In the months that followed, as the economy sapped both sales and capital, JDA revealed that it was struggling to secure financing for the acquisition, and asked i2’s investors to consider renegotiating the deal at a lower price. Instead, i2’s shareholders held firm to the original agreement, and that resistance helped scuttle the deal.
In the aftermath, i2 seemed caught between dusting itself off for another suitor and forging its own path in the supply chain software market it had helped pioneer. In an interview in February 2009, CEO Jackson L. Wilson, Jr. told Managing Automation that i2’s quarterly results and cash position made it an attractive takeover candidate, even as he outlined plans to place greater emphasis on i2’s service offerings, restructure its R&D efforts, and transition to more subscription-based sales.
If JDA succeeds this time, it will be paying, in part, to buy back the $20 million termination fee it paid to i2 in the wake of its failed buyout attempt. In today’s statement, JDA said the combined company would comprise 6,000 customers, represent $617 million in annual revenue, and extend JDA’s reach into the discrete manufacturing and transportation markets.
The boards of directors of both companies have approved the transaction. JDA predicted that the deal would close in the first quarter of 2010 and would be accretive to earnings in that year.
Mindful of its failed first attempt, JDA said the deal is "structured to ensure a high degree of completion certainty.” JDA will use a combination of cash on hand, debt financing, and JDA common stock to finance the transaction, according to Pete Hathaway, JDA’s executive vice president and chief financial officer. “We intend to access the high-yield loan market to finance approximately $275 million of acquisition financing,” he said in a statement. JDA has until Dec. 19 to raise the debt. Under that arrangement, i2 investors are slated to receive for each of their shares $12.70 in cash and 0.256 shares of JDA common stock, for a combined value of $18 per share, based on JDA’s stock price as of Nov. 4, 2009.
A fallback financing structure will kick in if JDA is unable to secure the $275 million in the allotted time frame. Under those terms, i2 stockholders will receive $6 in cash and 0.580x shares of JDA common stock, for a combined value of $18 per share. “JDA has received a fully underwritten commitment from Wells Fargo Foothill and Wells Fargo Securities to provide a $120 million term loan and a $20 million revolving credit facility to finance the transaction under the alternative structure,” the company revealed.
Under the first financing option, JDA will “consider adding one mutually agreeable i2 director to its board.” If JDA invokes the alternate financing option, it is required to add an i2 representative to its board. Under the primary option, JDA need not secure the approval of its shareholders. Under the alternate agreement, it must.
JDA also revealed that it has “entered into voting agreements with all directors and certain executive officers of i2, and with i2’s Series B stockholder, pursuant to which such signatories have agreed to vote in favor of the merger agreement and against any other proposal or offer to acquire i2.”
If a competing offer from another company emerges and i2 accepts, it will need to pony up a $15 million cancellation fee to JDA. Alternately, JDA must pay i2 $30 million “if JDA fails to close the merger due to failure to obtain financing under certain circumstances.”