April 20, 2004 2:06 PM PDT

Salesforce IPO to raise up to $85 million

Salesforce.com plans to raise as much as $85 million in the initial public offering of its stock, according to a regulatory filing issued Tuesday.

Salesforce, which sells business applications software, will offer 10 million shares--nearly 10 percent of the company--at a price range of $7.50 to $8.50, according to the company's prospectus. The price range means that the company's market capitalization would total about $850 million.

The IPO is being led by Morgan Stanley, along with Deutsche Bank, UBS Investment Bank, Wachovia Securities and William Blair & Co.

Salesforce expects to use the proceeds of the IPO for capital expenditures, acquisitions and other general purposes, the filing states. IPOs usually occur about four weeks after the stock's price range is filed, according to analysts.

According to earlier filings, the company expects to offer its shares on the New York Stock Exchange under the symbol CRM. The acronym stands for customer relationship management, which is the type of software in which Salesforce specializes.

When it initially filed its IPO papers in December, the company told the SEC that it hoped to raise $115 million.

"At this point, the stock warrants very serious consideration but will face the problem of having Morgan Stanley as their underwriters for their role in the dot-bomb days," said David Menlow, president of IPO Financial Network.

He added that the price range Salesforce announced is appropriate for the portion of shares the company will be offering.

After the IPO debuts, CEO Marc Benioff will own a 28.3 percent stake in the company. His holdings will be worth $239.5 million, based on the high end of the $8.50 pricing range, according to the SEC filing.

That may take away some of the sting from his compensation package. Benioff earned a salary of $1 in fiscal 2004 and 2003, in a move similar to other IT chief executives, such as Apple Chief Steve Jobs and John Chambers, chief executive of Cisco Systems.

The offering is expected to rekindle the market for high-technology IPOs. The Salesforce filing comes on the same day that Linux software maker Lindows.com announced the details of its IPO plans, meant to raise $57.5 million. Other high-tech companies with pending IPOs include antispam software maker Brightmail and comparison shopping engine Shopping.com.

Salesforce's IPO is also seen as a test of a new business model that could shake up the software industry. The company is the poster child for subscription-based software, a model that's gaining popularity among corporate buyers. Analysts predict that the success of Salesforce and others like it could pose a challenge to old-guard software companies, including SAP, Siebel Systems, PeopleSoft and Oracle.

The IPO announcement also brought new numbers for Salesforce's recent earnings. The company restated its financial results in its latest SEC filing, due to requests from regulators to have an apples-to-apples comparison of previous years. The company recently changed the way it accounted for sales commissions, making comparisons to previous years more difficult.

The recalculation gave Salesforce a $3.5 million net profit for fiscal 2004, compared with a $4.7 million profit for nine months of fiscal 2004, which ended Jan. 31. And in fiscal 2003, the company generated a $9.7 million loss, slightly more than the previously reported loss of $9.3 million.

 

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