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At Siebel, Rumors Fill the Void

By Sarah Lacy On May 5, Siebel Systems (SEBL) investors and analysts gathered for a powwow with company execs in New York, hoping for a change in tune from an outfit company that so far has refused to tell them what they want to hear: Mainly, that the embattled Silicon Valley software maker will use its $2.2 billion in cash to issue a dividend or conduct a stock buyback, or just sell out to the highest bidder.

The investors left disappointed.

Inside Siebel's San Mateo, Calif., office complex, the mood isn't much better, according to a dozen interviews with insiders and recently departed employees. Workers and execs are struggling with a myriad of issues.

ANY TAKERS? In just the last month, Mike Lawrie, CEO for less than a year, was fired, and Siebel missed first-quarter earnings expectations by 12% (see BW Online, 5/6/05, "Siebel's Ousted CEO Speaks"). Now a shareholder revolt is brewing, employees are defecting by the dozen to German rival SAP (SAP) and rumors are rampant of takeover bids by ever-acquisitive database giant Oracle (ORCL) or even financier Carl Icahn.

As if things couldn't be any more uncertain, there is also a question of what new CEO George Shaheen, a longtime Siebel board member, is being compensated to do. Is he the turnaround guy or the man whose job it is to sell off the company? If 35% of the Siebel is sold, Shaheen will receive two years' salary -- about $2 million, plus a target bonus of 125%. Also, his 2 million options, worth about $18 million at current prices, will vest immediately, according to filings with the Securities & Exchange Commission.

That's a common -- even conservative -- deal for a chief exec, but it's a major change of pace at Siebel. Lawrie had a similar deal if 50% of the company changed hands. Before that, Siebel had entered into no such arrangements with founder and still-chairman Thomas Siebel, according to Paul Hodgson, senior research associate specializing in executive compensation for The Corporate Library, an independent research firm that focuses on corporate-governance issues. A Siebel spokesperson declined to comment.

SAP'S TALENT HUNT. Now, five sources say, a new round of layoffs has started at the once-highflying company. In fairness, they're relatively minor reductions -- less than 100 positions out of a 5,000-person workforce are expected to be eliminated, far fewer than those who cleared out their desks during the series of major layoffs that have occurred since Siebel revenues peaked in 2002. A Siebel spokesperson would not comment on current layoffs, but Chief Financial Officer Ken Goldman, speaking at the May 5 analyst conference, put savings from the headcount-reductions at $3 million in the current quarter.

Plenty of that could come through attrition as nervous employees jump ship. Bill McDermott, CEO of SAP Americas and onetime Siebel executive vice-president of worldwide sales, told BusinessWeek Online that SAP has hired more than 100 Siebel employees in the last 18 months. He expects to hire another 20 to 30 in the next few months, many of whom will work in a major SAP office about 10 miles away from Siebel's headquarters.

"We're expecting a nice spike," he says. "Now that the viability (question) has intensified, we're getting more requests from people wanting to work at SAP." A Siebel spokesperson wouldn't confirm or discuss those figures, but it's certainly an ironic turn of events. In 1999, SAP sued Siebel on the grounds that it engaged in "predatory hiring practices" when it lured 27 of its key employees.

"TREMENDOUS PERSONAL COMMITMENT." Some Siebel employees say they are finding themselves with little compunction to stay and strong emotions as they head out the door. "All they had was a financial contract with the employees," says Carlos Chou, former president of Siebel Systems Asia Pacific & Japan. He left Siebel for SAP in September, 2004, to be senior vice-president of strategic alliances. "That works fine when the stock is on the way up, it's not so good when that's the only bond you have and things go south." Siebel shares closed at $9.66 on May 13, up 0.7%. It has traded in that range since the uncertainty -- and speculation of an acquisition -- began.

That Shaheen hasn't purchased any Siebel stock since taking over as CEO has also raised eyebrows. When Daniel Crowe of Founders Asset Management, a Siebel investor, asked Shaheen about it at the analyst conference, the CEO replied: "I've made a tremendous personal commitment to this company and its future and that may not be a sizable investment to you, but it's a heck of a personal investment to me." Shaheen owns 54,030 Siebel shares, worth an estimated $520,000. His most recent share purchase was 3,700 shares in January.

To most folks, that certainly is a sizeable investment. But investors and even many employees may be holding out for a lot more. Lacy is a reporter for BusinessWeek Online in Silicon Valley

with additional reporting by Steve Hamm in New York

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