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PETER GYENES OF INFORMIX: Getting the bugs out

The once high-flying software company had just begun to recover from an accounting scandal but choked on an acquisition. Now comes the cleanup.

The once high-flying software company had just begun to recover from an accounting scandal but choked on an acquisition. Now comes the cleanup.

By Justin Schack
February 2001
Institutional Investor Magazine

Peter Gyenes was ready to relax a bit last spring. The technology industry veteran had just sold Westboro, Massachusetts,based Ardent Software to Silicon Valley,s Informix Corp. for $880 million. And once the deal closed, Gyenes was planning to step back, ceding control of the merged company's operations to Informix CEO Jean-Yves Dexmier and taking a hands-off role as a board director and strategic adviser.

So much for planning. Thanks to Ardent, Informix had reached $1 billion a year in revenues and dreamed of regaining its lost stature in the database software market. In the mid-1990s the company was a bona fide challenger to industry giant Oracle Corp. but ran into trouble following an accounting scandal that led to the ouster of its management team. Dexmier had begun to revive Informix's fortunes, but was soon overwhelmed by the task of integrating Informix and Advent. In July, after the company fell short of Wall Street's earnings expectations for the second consecutive quarter, the board ousted Dexmier and called Gyenes out of semiretirement.

A native of Hungary, with a 30-year industry track record (he started out as a salesman for Prime Computer), Gyenes clearly has his work cut out for him. Informix shares, which traded as high as 211/4 immediately following the merger, have plunged below 5. With solid cash flow and no debt, some see the stock as ripe for a takeover, possibly even a leveraged buyout.

Gyenes's recovery plan is straightforward. He plans to carve Informix's two lines of business, database software and e-business solutions, into separate, more focused companies, slash about 500 of the company,s 4,400 jobs and accelerate the postmerger integration that eluded Dexmier.

But the plan is also somewhat radical. Informix,s core database software business will remain in Silicon Valley, where it once conducted a billboard war on Highway 101 with rival Oracle, portraying Lawrence Ellison's $178 billion behemoth as a dinosaur to passing motorists. But headquarters will shift to Westboro, along with the company's new, higher-growth, e-business unit, a move that reportedly has disquieted some veteran employees.

Gyenes recently discussed Informix's outlook with Staff Writer Justin Schack.

Institutional Investor: After selling Ardent, why did you agree to come back and run the merged company?

Gyenes: I wound up with a very significant stake in Informix as a consequence of the sale, and I was also the one who led the Ardent constituency into the deal. So I felt a big sense of responsibility for the outcome. The two companies were not being integrated properly, which began to hurt Informix's image. As all of that started to surface, I became more engaged in creating an awareness among the other board members about what was going on, so the board could determine what kind of action needed to be taken.

What went wrong with the integration?

Looking at the quarterly financial results, it was pretty obvious. The management team really wasn,t working together. There were no clear strategies. People weren,t being deployed in the right places. The main goal of the deal was to grow the top line, so integrating the Ardent sales force and the Informix sales force was critical. We needed to train the Informix sales force, which was 15 times larger than Ardent,s, about all of Ardent's products and go through cross-selling programs with all the salespeople. This is pretty basic stuff, but it just wasn,t happening. The mood of our employees and certain key customers was not good. Key people started leaving the organization. We weren,t achieving the operating milestones we,d set. It was very, very disconcerting. When we missed expectations for the first quarter [of 2000], it was a surprise for Wall Street, but it was also much more of a surprise, internally, than was appropriate. We had a real credibility problem developing.

Why split the company into separate database and e-business units?

Informix is actually in two different businesses: the traditional database business and an emerging e-commerce software solutions business. The Web is fueling tremendous demand for new kinds of data warehousing and business intelligence software, which is different from our traditional database technology. It needs to handle many different types of data, in humongous quantities. Informix was not focused on the specifics of that market. It was trying to leverage its position in the database business into solution software for e-business. But the businesses are very different. The customers that will make a decision for that software are not interested in making database decisions also. The solutions business is a huge growth opportunity for us, so we want to make sure we have the proper focus there.

What kind of growth do you expect in e-business?

We,ve been saying, externally, that our revenue should grow by 80 to 100 percent for 2001. Our plans, internally, are a little more aggressive than that, which is what they should be. We are starting with a level of resources that's a little bit more than you might normally see if the company were not an extraction from a bigger company. We,ll have operating income by the second half of the year.

What are the practical applications for the e-business software you sell?

These are products that deal with the management of content in the Internet environment and in business intelligence environments. Let's say you are a brand manager for, I don,t know, Colgate toothpaste. There,s a whole bunch of information you look at on a corporate site that is personalized for your job. You want to look at sales data, the impact of various promotions, market research. That requires gathering a tremendous amount of data from lots of different places. Intuitively, this is not all that complicated. But multiply it by millions of data items and text, and by thousands of people within the company who have these kinds of needs, and this is a big problem for an information technology department. So we,ve developed software products and capabilities that address these requirements.

Will the two units be separate, publicly traded entities?

Yes. We,re in the process now of determining what mechanism it takes to get that done. There are lots of ways to do it. Tracking stocks, carve-outs, a bunch of different options. Informix will probably wind up still owning about 81 percent of each. And then later, once we get the IRS rulings and all that kind of stuff, we would distribute the balance. That will all happen this year.

How difficult has it been to repair the company's image from the accounting scandal a few years back and the more recent operational problems?

I spend a lot of time with customers, partners, employees, analysts, and I hear one universal message. They say: "We love your technology, we love your products, we love your people. The industry wants an alternative to this big, 800-pound gorilla. But you,ve got to get your act together because we cannot keep apologizing for being your customer." So not long after I took over, I got up in front of the employees, and I said: "We are changing. We,re not going to do the same things, and we,re not going to do things the same way. Because why would we? Is there anybody here who likes what's been happening? Is there anybody here who likes the results? If you do, that's okay. Just do it somewhere else, please." These things linger. The accounting stuff is four years old, but it still comes up in interviews. It's up to us to change the image out there so that people are interested in what we,re accomplishing, not in ancient history.

You,ve been out spreading the word for a while, but your stock still suffers. What do you attribute that to?

To the company not performing well. The stock market has an appropriate wait-and-see attitude. It's our job to move the company along, and then, if they wait, they,ll see. I think that's what's going on.

Would you consider selling the company for the benefit of the shareholders?

Our objective, and also our responsibility, is to provide value for the shareholders. We,re interested in whatever it takes to get there. But we also have a plan to get there over time, we have a strategy, we have a lot of focus on it.

So you plan to stay independent but wouldn,t rule out a sale?

I will rule out nothing that is on the path of building value.

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