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Siebel Management Change Could Pave Way For Acquisition 2

Former IBM VP Mike Lawrie replaces Tom Siebel, who will stay on as chairman; some industry watchers expect more IBM execs to switch over to Siebel.
One thing Tom Siebel's never been accused of is indecisiveness. On Monday, the man who founded one of the fastest-growing software companies in history made one of his legendary swift decisions and stepped down unexpectedly from his CEO post. Siebel handed the job to former IBM executive Mike Lawrie.

Now here's a question in the minds of those who've kept track of the longtime partnership between Siebel Systems and IBM: How long will it take for IBM to make an outright bid for the company?

Tom Siebel's move comes at a crucial juncture for the company. Siebel recently reported one of its strongest quarters since the economy turned sour; it's preparing to launch a new version of its core customer-relationship-management application; it's facing more competitive pressure than ever from numerous enterprise applications vendors; and it's attempting to establish its on-demand CRM offering to compete with upstart Salesforce.com.

All of those developments apparently led to Siebel's leadership determining the time was right to make a change. "After giving it a lot of thought, consulting with the board, and consulting with the management team, I was absolutely certain this is the right decision for the company," Tom Siebel said during a conference call announcing the change.

Siebel quelled any speculation that he was walking away from the company or had been asked to leave. "Mike is the CEO, and Mike runs the company," he said. "I will remain an employee, I'll continue to assist with strategic partner relationships, and strategic customer relationships, and help the team in any way that I can. I'm not going anywhere."

Lawrie, a 26-year IBM veteran who most recently managed $80 billion in revenue as the company's senior VP and group executive of sales and distribution, said he has no plans to make any significant changes to Siebel's executive management. "I'm only an hour into this, but the intention is to stay with the team, and the strategy and game plan," he said.

A key part of that game plan, says Forrester Research analyst Erin Kinikin, has been strong ties with IBM's technologies and strategy. Compatibility with IBM's WebSphere middleware has become a key component of Siebel's product development, and IBM provides the hosting service behind Siebel's on-demand CRM service. Meanwhile, says Kinikin, IBM is facing increased competition from SAP in providing application infrastructure; SAP's NetWeaver integration platform competes directly with IBM WebSphere. And it also sees competition from Microsoft in delivering software to mid-market customers. For that reason, she says having a former IBM exec take over day-to-day operations at Siebel could be a move to position Siebel as an acquisition for IBM.

In the meantime, hiring Lawrie solidifies Siebel's ties to IBM. "Siebel is clearly betting its future on being IBM-centric," says Kinikin. "How better to be IBM-centric than to bring over a bunch of IBM executives?" Kinikin and others--including Marc Lewis, North American president of recruitment firm Morgan Howard, which has had a hand in recruiting Siebel execs--expect other IBM execs to follow Lawrie to Siebel.

After peaking with more than $2 billion in annual revenue in 2000, Siebel slumped during the economic downturn, shrinking to $1.35 billion in revenue last year. Siebel watchers were encouraged by the company's most recent quarterly results, which were highlighted by a 13% growth in license revenue compared with a year earlier, although revenue was relatively flat.

Denis Pombriant, principal analyst at Beagle Research Group, says Tom Siebel has accomplished everything he set out to do, and that he must have recognized that a change was needed. "No individual is an infinite resource," Pombriant said. "You get to a point in the evolution of a company when you have to transition to new management to take it to the next level."

But IBM may not be the only potential suitor. Some analysts feel Siebel would be a logical fit for Oracle, which has said it expects to buy other software makers even it if succeeds in its quest to buy PeopleSoft Inc. for $9.4 billion.

Tom Siebel has repeatedly told investors and analysts that his company is more likely to be a buyer than a seller. With an 11% stake in the business, he'll continue to have a major say about the company's destiny. And Siebel, a former Oracle exec, has feuded for years with his former boss, Larry Ellison.

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