Tuning In to the Takeover Buzz
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To read Jim Cramer's take on Siebel Systems, click here.
We have had our eye on Siebel Systems (SEBL) for some time as a potential takeover target in the struggling software space. The Wall Street Journal's "Heard on the Street" column highlighted the pros and cons of the Siebel story Thursday morning, and while we aren't taking any action on the story, we are going to add the stock to our watch list and look to take action on a pullback to $8.50 a share. The stock was recently trading at $9.35.Inflection-point play Siebel hit our radar screen as a low-dollar way to gain access to strong growth in customer relationship management (CRM) software. We believe shares have as much as 25% upside over the next three to 12 months as investors speculate on a potential takeover bid. Siebel is the leading CRM provider. Its technology allows Fortune 500 companies such as 3M (MMM) to better manage customer data and automate customer support services. But the company faces stiff competition from the likes of salesforce.com (CRM), which is growing its user base at a rapid clip, and Siebel's management has struggled to find a good use of its $2.25 billion cash hoard. It has said it will look to invest in the business as opposed to paying a large one-time dividend. Tough competition, coupled with some earnings hiccups, has led to a 10% decline in Siebel shares over the past year. We believe there is more value to Siebel's business than investors are currently pricing into Siebel's stock, and that the upside from the potential for the company to go private or be taken over by acquisition-hungry Oracle (ORCL) far outweighs downside in the business from current levels. The recent action by corporate activist Carl Icahn, who took a 4.5-million-share position in Siebel on May 13, and who has a history of bringing out value in his investments, confirms our view. Icahn loves to get involved in companies that are wreckable, meaning he only puts his money behind companies that he believes are worth more dead than alive. We believe this practice holds true with Siebel.
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