June 8, 2005 9:02 AM PDT

Siebel announces first-ever stock dividend

Enterprise software maker Siebel Systems announced on Wednesday its first-ever stock dividend payout to shareholders, just ahead of a shareholders' meeting that saw controversial directors re-elected but investor pressure continue.

In a statement, Siebel's board of directors said that on July 15 the company will pay a quarterly dividend of 2.5 cents per share to shareholders who have purchased their stock before the Nasdaq's close of business on June 30.

The company said that it would also continue to pay a dividend to investors each fiscal quarter going forward, but that the board will determine the size of future disbursements on a case-by-case basis.

A potential dividend payout had been rumored as one of the ways Siebel might appease investors.

The dividend announcement came just hours before the kickoff of Siebel's annual shareholder meeting and board elections in Burlingame, Calif. Several of the company's major investors had been expected to withhold their votes for Tom Siebel, company founder and chairman, and two other directors. Among investors leading that ultimately unsuccessful effort were Jana Partners and Providence Capital, who have both publicly stated their displeasure with the company's current management.

A potential dividend payout had been rumored as one of the ways Siebel might appease investors who wanted the company to put its estimated $2.2 billion to work in increasing shareholder value. But that option had been considered unlikely because the company had never taken such a measure before.

In a letter to investors posted on the company's Web site on Wednesday morning, George T. Shaheen, Siebel's recently appointed chief executive, explained why the board, of which he is a member, decided that the time was right to create a stock dividend. The letter described Siebel's current business plans, which are focused on reviving its growth in the market for software designed to help with customer relationship management, or CRM. It's a market that Siebel helped create, but one in which the company has seen rivals such as SAP and Salesforce.com take away its leadership role.

"This dividend program reflects our board of directors' confidence in Siebel Systems' long-term record of positive cash flow generation, strong future growth opportunities and substantial commitment and ability to return capital to shareholders over time," Shaheen said in a statement. "We believe it is the best way to increase long-term shareholder value, while preserving the financial strength and flexibility we need to take full advantage of growth opportunities."

Shaheen's appointment in April created some controversy. He was tapped to replace former CEO Michael Lawrie, who had led the company for less than a year. Some stock analysts who cover Siebel have previously pointed out that despite being on Siebel's board for roughly a decade, Shaheen has never bought a good deal of the software maker's stock.

In late May, Siebel announced an employee retention program aimed at keeping workers from jumping ship amid rumors of a potential buyout.

In his letter, Shaeheen said that Siebel will in fact be on the lookout for companies to buy, and indicated that the company will try to keep enough money on hand to make such acquisitions.

Shaheen also announced in the letter that Siebel will look to add two independent members to its board in the coming year, thereby raising its number of directors from eight to 10.

At the opening of the meeting, the company reported that its investors had in fact re-elected Siebel and the two other controversial directors, Marc Racicot and James Gaither, to the board for another term. But the level of their enthusiasm was less than in the previous year.

Shareholders withheld 11.7 percent of the votes for Gaither, 13.6 percent for Siebel and 16.9 percent for Racicot.

Last year, three of the four directors up for re-election had only 3.3 percent of the votes withheld, although Charles Schwab, who has since stepped down from the board, had 8.9 percent of the votes withheld.

Proxy solicitors note that directors and companies are usually worried when the number of votes withheld for a candidate reaches the 35-percent range.

"Some directors feel 1 percent is a lot and others feel 50 percent is a lot," said Rick Grubaugh, senior vice president of proxy solicitor service D.F. King & Co. "But in general, 35 percent has been the line in the sand that no one has wanted to go over."

Some experts said that the timing of the dividend announcement was likely linked to Siebel's desire to generate positive news out of the event, not to reduce shareholder pressure on its directors. Companies often use their annual shareholders' meetings to make major announcements, from a corporate restructuring to a dividend announcement, proxy solicitors said.

"When a significant announcement is done at a shareholders' meeting, it's usually because the board is being responsive to shareholder pressure, rather than done to change the outcome of a shareholder vote," Grubaugh said. "The overwhelming majority of investors usually cast their votes before the day of the actual annual meeting."

 

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