By William Fellows
BMC Software Inc’s acquisition of Boole & Babbage Inc for around $900m in stock is expected to close in mid-March, after which the company will disclose plans to bring the two systems management product lines together. However it won’t be all smooth sailing, according to details revealed in the company’s latest SEC filing. BMC plans to integrate Boole’s Command/Post with its Patrol application management suite. Boole’s MainView product will be integrated with BMC’s IBM mainframe product lines. The company admits the undertaking will be difficult and unpredictable. In March 1998, BMC acquired BGS Systems Inc and is in the process of integrating BGS’s Best/1 mainframe and client/server applications with Patrol and other BMC products. The Best/1 products will also be integrated with Boole’s Command/Post and MainView products. BMC’s acquisition of Boole also leaves questions marks over revenue from some distribution channels. 14% of Boole’s 1998 revenue was derived from sales of New Dimension Inc software which it peddles through its European and Pacific Rim subsidiaries. New Dimension has the right to terminate the agreement in light of the acquisition termination could also result in the loss of certain key Boole employees and customers in its international operations, the filing says. New Dimension said it hadn’t yet made a decision about continuing the relationship through BMC and doesn’t expect to make any announcement until after the acquisition closes. It noted that it does already have a partner relationship with BMC and claims there is little overlap between their products. The filing also reveals that almost one-quarter of BMC’s revenue is dependent on license sales to customers planning to add more mainframe MIPS capacity but have not yet done so. BMC’s capacity-based upgrade fees associated with both current and future processing capacity contributed 33% of its fiscal 1998 revenue of $730.6m. The charging of upgrade fees based on running previously-licensed software on more powerful computers is standard among mainframe systems software vendors, including IBM. It warns, however, that the pricing of these processing capacity-based fees is under constant pressure from customers, and IBM is aggressively seeking to reduce the costs of its mainframe systems software. BMC derived 74% of its $730.6m from mainframe software sales. Patrol and other client/server systems management products contributed $192m in revenue, up 87% over the prior fiscal year, or some 26% of total revenues. In addition, to trying to reduce the overall software costs associated with OS/390 mainframes, IBM is also enhancing its utilities for IMS and DB2 to provide lower-cost alternatives to BMC, Boole and other third-party software. The filing also shows that it was as a result of failing to achieve a critical mass in the market, either by organic growth or acquisitions, that Boole decided to put itself up for sale. The decision followed an October 30, 1997 meeting at which Boole management put in place a strategy that would lead to its being bought if it couldn’t achieve critical mass. Boole pursued several potential acquisitions unsuccessfully. It was courted by a number of companies including Platinum Technology Inc after it engaged Morgan Stanley to find a buyer for it. Morgan Stanley’s match-making fee is $8.5m. BMC went public with its plan to acquire Boole on November 2. Platinum is still seeking $30m damages, claiming Boole broke the terms of an exclusive negotiation agreement with it by engaging in talks with BMC. BMC has agreed to employ the majority of Boole’s executive management for eight months after the acquisition including president and CEO Paul Newton, Johannes Bruggeling, Richard Harritt, Jim Black, Saverio Merlo and Arthur Knapp. There is no mention of chairman Franklin Johnson, however. Each will get what appears to be a signing bonus of a year’s salary when they become BMC employees.
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