Filing shows that Cognos went to IBM first for buyout talks

Cognos shareholders will vote on the $5B deal Jan. 14

Cognos Inc. executives first approached IBM in the months leading up to IBM's pending $5 billion deal to buy the company, not the other way around, according to a document Cognos submitted Friday to the U.S. Securities and Exchange Commission.

The filing was prepared for Cognos shareholders in advance of the Jan. 14 vote on the sale.

The details it provides of the negotiations between IBM and the company stand in contrast to past statements made by Rob Ashe, the Canadian business-intelligence software maker's CEO, who at one time stressed that the company's game plan was to become the top independent BI vendor in the market.

But clearly, those ambitions weakened as the market saw a dramatic consolidation in 2007, with SAP AG scooping up Business Objects and Oracle buying Hyperion.

In fact, Cognos talked with potential suitors as far back as the middle of last year, according to the filing. A firm that Cognos identified only as "Company X" approached it about a possible acquisition on July 19, 2006, but those discussions eventually broke down, according to the filing, which does not reveal Company X's price-per-share offer.

Negotiations ceased on Nov. 20, 2006, and Cognos subsequently reached out to IBM in December 2006 to gauge its interest, according to the filing. "While our board of directors had not determined that a sale of Cognos was the most desirable outcome, it believed that IBM's interest was of relevance in considering any strategic alternative in the event that Company X or other potential acquirers approached us," it states.

Company X attempted to restart talks with Cognos on Dec. 6 but refused to raise its offer, according to the filing.

Ashe then met on Jan. 8 with Ambuj Goyal, general manager of IBM's information management division, and Steve Mills, senior vice president and group executive, IBM Software Group.

Cognos entered a confidentiality agreement with IBM on Jan. 31, and executives from the two companies met a second time on Feb. 2. Talks continued throughout the year but revolved around partnership opportunities until Sept. 21, when Goyal and David Johnson, IBM's vice president of corporate development, called Ashe "on an unsolicited basis, and expressed IBM's interest in acquiring Cognos," the filing states.

The two firms spent the next several weeks haggling over a price for Cognos. IBM's initial offer was $50 to $52 per common share in cash, but Cognos deemed it insufficient, according to the filing.

Following a series of back-and-forth negotiations, IBM raised its price to $57. Cognos did not accept but said it would proceed based on a $58-per-share offer, the filing states.

IBM agreed, and the firms eventually signed the deal on Nov. 11.

A spokeswoman said that Cognos would not comment on the filing. Shares of the company were trading at about $57 midday.

Copyright © 2007 IDG Communications, Inc.

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