Acxiom Finds Itself in Period of Uncertainty

by Mark Friedman  on Monday, Jan. 7, 2008 12:00 am  

Charles Morgan realizes the failure to find a new company leader has handicapped Acxiom Corp. of Little Rock.

"These periods of uncertainty are not helpful to growing the business or not helpful to recruiting new people or retaining people," he said in a recent interview with Arkansas Business. "It's unsettling to everybody."

Morgan also said the stress of the collapsed sale of Acxiom Corp. hastened his decision to retire.

Morgan used the title "company leader" as both chief executive and chairman of the publicly traded company's board of directors. In May, when the $3 billion sale of Acxiom to Silver Lake Partners and ValueAct Capital Partners was announced, he said he had no desire to leave the company and believed the buyers wanted him to stay.

But then, Morgan said, as the deal crawled forward, he privately told Silver Lake and ValueAct officials that he would retire after the sale was completed. The deal, however, was called off on Oct. 1.

Still, Morgan, who is 65, said he decided to go ahead and retire.

Morgan said he had a lot of restless nights as he watched the crumbling of the potential sale of the data-mining company he ran for more than 30 years and developed into a Fortune 500 company.

"You don't like to be involved in something that is out of your control," Morgan said.

If the sale had gone through, Morgan would have received more than $80 million at the buyout price of $27.10 a share.

Blames Credit Meltdown

Morgan said the credit crunch precipitated by the crisis in the subprime mortgage market was the main reason the sale collapsed.

"The meltdown in the credit market was clearly the biggest single factor," he said.

"That was our biggest fear that every day the credit market situation got worse and worse and it continued to get worse."

While Morgan still is acting as company leader, in November he received a $3 million buyout and was replaced as chairman by Michael J. Durham, a former CEO of Sabre Inc. and a member of Acxiom's board since 2006.

Morgan said he will remain as interim company leader until a replacement can be found because the company doesn't need to be in limbo as it was while waiting to transform from a public company to a private one.

He said the board and management are heavily involved in trying to find a successor.

"We need to get out of this period of uncertainty, and now we can't fix the subprime crises but at least we can get a leader," he said in late December. Morgan didn't have a timeline for when the new CEO will be in place but said it could take as much as six months.

"The board is working hard to try and get someone identified, and that process is very active right now," Morgan said. "We've had good results from our recruiting process, and we have a number of very promising active candidates."

The new CEO will have to deal with a company that has seen its stock price tumble from $27.96 on May 30 to under $12 last week, despite a corporate buy-back of more than $40 million worth of stock.

And a recovery doesn't appear to be on the horizon for Acxiom anytime soon.

Moody's Investors Service in December gave Acxiom a negative rating outlook because of the hurdles it faces trying to regain revenue growth and profitability. Acxiom also is dealing with the decline in the financial services market, which makes up about 25 percent of the company's customer base.

The company's earnings had not been stellar either.

In the second quarter, which ended Sept. 30, Acxiom reported a 51.5 percent drop in income to $10.5 million compared with the same quarter in 2006.

Acxiom also announced it would lay off more than 250 people in a work force of about 7,100 employees because of the poor quarters, but Durham and Morgan have indicated that no new decisions on staffing levels will be made until the new CEO has time to evaluate the company.

That $3 Billion Deal

In May, Acxiom announced it was going private and would be sold to ValueAct and Silver Lake in a $3 billion deal.

Acxiom's announced sale was part of a string of private-equity firms gobbling up companies and a number of Wall Street banks agreeing to finance the purchases.

The Acxiom deal got off to a shaky start as one of Acxiom's investors, MMI Investments LP, which owned about 8.9 percent of the company at the time, said it wouldn't support the sale, saying the $27.10 price per share was too low.

MMI later changed its position and supported the sale. It also increased its holding in Acxiom to 9.7 percent.

But a date for shareholders to approve the deal was never set. The vote date wasn't needed because a combination of events derailed the sale.

By August, the global credit crunch hit, and a number of Wall Street banks became uneasy about financing deals. A number of agreements involving the sale of publicly traded companies started falling apart over the summer.

To make matters worse, the financial services segment fell into turmoil.

"We knew that our banking customers were concerned about the subprime prices and what impact that might have globally on their business," Morgan said. "So we were watching it pretty closely, knowing it put us at risk."

He said the financial services customers pulled back on spending, which triggered a drop in Acxiom's earnings.

For the first two quarters of fiscal 2008, Acxiom's balance sheet wasn't as healthy as it had been in fiscal 2007.

In the first quarter of fiscal 2008, which ended June 30, Acxiom reported a loss of $11.5 million, which included $15.1 million in costs related to the pending sale. Still, without the unusual expenses, Acxiom would have made $9.1 million in the quarter, though that would have been off nearly 50 percent from the same quarter in fiscal 2007.

And Acxiom's earnings in the second quarter of fiscal 2008 were off about 50 percent from the same period in fiscal 2007.

Morgan said the poor quarters impacted the attractiveness of the sale.

At the end of September, several news outlets were reporting the deal was in danger of collapsing.

On Oct. 1, the deal was officially off the table. ValueAct and Silver Lake agreed to pay Acxiom a $65 million break-up fee to walk away from the company. The fee was negotiated down from the $110 million break-up fee that the deal originally specified.

In the Aftermath

After the deal collapsed, MMI Investments dumped nearly all its shares of Acxiom stock.

ValueAct Capital Partner's Jeffrey Ubben, who also sits on Acxiom's board of directors, told Forbes after the deal fell apart that "I feel like we can fix this. I don't think it's clear yet, but I'm committed to stay on the board."

Morgan said it was understandable that Ubben would support the company because of ValueAct Capital's investment. It owns 10.3 million shares of Acxiom, or nearly 13 percent.

Ubben didn't return a call for comment.

"He has made a big bid, and clearly he's anxious to do anything he can to see the stock price recover," Morgan said. "I think he is fundamentally trying to give people confidence that everything is going to be OK."

In the meantime, Ubben has made several trips from San Francisco to talk to CEO candidates.

Morgan said he doesn't know what he would have done differently in handling the sale.

"When we started the process, nobody had heard of subprime crises," Morgan said. "If somehow we could have seen the future, we obviously never even would have started the process."



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