Siebel Starting to Pay Out

I admit it: I'm a sucker for dividends. So when troubled software maker Siebel Systems (Nasdaq: SEBL  ) yesterday announced its intention to begin a quarterly payout to common-share holders, I got interested.

The $0.025 dividend will be paid on July 15 to shareholders on record as of June 30. That's $0.10 annually and would equal roughly a 1.14% yield at the current per-share price ($8.80 as of this writing). Not bad, but not exactly a market-beater either because a comparable Standard & Poor's 500 index fund such as Vanguard pays 1.4%.

But this is also no ordinary dividend declaration. CEO George Shaheen, ahead of the company's annual meeting, published a letter to shareholders in which he described the payout as one of several initiatives under way aimed at boosting shareholder value. Among them: simplifying the sales organization, cutting costs to achieve a 15% operating margin, technically revamping the core customer relationship management platform, using cash for acquisitions, reinstating mid-quarter updates, and adding two more independent directors to the board. Investors remain unimpressed, however, sending the shares lower by more than 2% since yesterday's open.

I've not been much of a fan of Siebel's shares, but the spate of selling since yesterday's news is just plain silly. Remember: When Shaheen's appointment was announced in April, the company was vilified for not having a plan to restore growth or make use of its $2.2 billion cash hoard. Now there is a plan, but investors are running for the hills.

I think I know why. Shaheen isn't taking the route most had expected in turning Siebel around. Instead of pining for a sale, he has instituted a top-heavy employee retention program that pays benefits if the firm is acquired and layoffs occur. And instead of buying back shares, he's calling for a relatively meager payout. Shareholders were expecting more.

Frankly, they shouldn't have been. Nor should they be so dour on Shaheen's plan now. I mean, really, why would you want Siebel to buy back its shares when they're overvalued? They are: In April, my calculations of intrinsic value had the company trading at a 40% premium to fair value. The stock has risen by nearly 4% since. And wouldn't Siebel command a better premium in a buyout if modest growth were to return? Of course. Shaheen may indeed be misguided with yesterday's moves. But he deserves every chance to try to prove otherwise.

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Fool contributorTim Beyerslikes his dividends like his steaks: fat and juicy. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what stocks he owns by checking Tim's Fool profile, which is here. The Motley Fool has adisclosure policy.


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