Look what Magic Software’s
painful fall is doing to the company and its employees. On the eve of the Jewish
New Year, the management assembled the employees in the Or Yehuda auditorium to
toast the new year. The Magic share needs more than just a few toasts to recover
from the blows it is taking. It stood at $7 just before the New Year, after
cruising at over $30 in better days.
”Globes” has learned that Formula
chairman Dan Goldstein did not stop at banal New Year toasts, but notified those
present that he was taking over as chairman of the board of Magic from David
Assia. Goldstein claimed he was doing this at the request of the two founders,
Assia and CEO Jack Dunietz. Assia, considered the architect of the company’s
previous recovery, will continue serving as Goldstein’s deputy. Despite
Goldstein’s diplomatic language, it is clear that the share price dictates some
kind of personnel change, and it appears that Assia has been moved aside.
Since the meeting, the Magic
share has fallen to $5, 80% below the price of its second issue. Not only the
employees are embittered; the investors lured into investing in the second issue
feel uncomfortable, to say the least. Goldstein himself says now, “The market
punished too severely and unnecessarily.”
”The US has a harsh system of
punishment. We issued a profit warning in the previous quarter and were
punished, and now we are being punished without a reason. Reports have been
multiplying recently of another imminent profit warning in Magic. This is the
time to announce that no profit warning is expected; we decided, however, not to
respond to every newspaper report, but to work harder.
”In my opinion, the current share
price is attractive and we are buying Magic shares. The company itself is buying
back $5 million of shares and our parent company, Formula, is also buying Magic
shares. We also bought at higher prices, but I regard this as a real bargain.
”If you look at the share price,
$2 out of the $5 share price is money in the bank. The company has $70 million
in cash on hand and fewer than 30 million shares, so $2.3 of the share price is
plain cash. The remaining $2.5-3 is an absurd price.”
”Globes”: The market thinks that Assia’s demotion is liable to damage the company.
”Why should the company be
harmed? David is remaining in the company, doing what he has always done. I'm
here as a pinch-hitter. David and CEO Jack Dunietz asked me to handle matters in
which I have more experience. Magic used to be a tools company; it now rests on
three pillars: tools, which will shortly be issued in a new version; solutions
and professional services.
”In the latter two categories, I
am more expert, so they asked me to join the team leading the company. David
hasn’t left; he is now vice-chairman. In addition, I don’t intend to settle in
Magic. I am here only to point the ship in a new direction, nothing else.”
Are you satisfied with the company’s functioning?
”Magic tripled its size over two
years, mostly from internal growth. There have also been mergers and
acquisitions, the most important of which was acquiring our Japanese
distributor, thereby shortening the pipeline to the market. Most of the
company’s growth was not from mergers and acquisitions, though.”
|
Shareholder |
% Holding |
|
Formula group |
48.1% |
|
Mashov group* |
30.2% |
|
David Assia |
2.1% |
|
Jack Dunietz |
Less than 1% |
*The controlling shareholders in
the Mashov group are Formula (53.1% and David Assia (6.7%).
Aren’t the employees frustrated?
”They work with us and must share
the burden of making things good for both them and us. We can improve the
company’s business performance, which is what we are trying to do now. The share
price is not subject to our control. We must improve the company’s results and
amaze the market; the share price will be affected later.”
What are you planning?
”Good results. Period. That’s
what will tell here. We must surprise the market with good results. Later we
will make the rounds of investment houses around the world and show them the
company again. We will only do that when we are confident we can achieve good
results, however, because analysts demand the goods immediately.
”We pressed people to close sales
quickly in time for the quarterly results, so that we could meet the analysts’
forecasts. That was not healthy for the company. The magic word is changing the
lineup of sales personnel in the field in the various branches and focusing them
on the new world of solutions, in addition to tools and professional services.
The sudden change we instituted in our product basket was not accompanied by a
change in sales personnel, which was a mistake. We discovered that people used
to selling tools were unsuitable for selling solutions, so we decided to recruit
new sales personnel and retrain the ones we already had.”
It sounds like a very long process.
”Definitely. The market is
much more selective and difficult today. Companies have to show results, and we
have to be among the leading companies in order to achieve the new multiples and
rejoin the exclusive winners club. The share will then take care of itself.”
Published by Israel's Business Arena on October 12, 2000