“Nature’s first green is gold, her hardest hue to hold.”  So begins a famous poem by Robert Frost, which for some reason popped into my head when I read the news this morning that the JDA-i2 merger deal was terminated. 

“Her early leaf’s a flower; But only so an hour.”

The bloom on this flower lasted about an hour, relatively speaking.  The acquisition was first announced in August, and my reaction at the time was mixed.  i2 had been exploring strategic options earlier in the year, so the market expected i2 to get acquired.  The only question was who, and the answer was surprising.  Most bets were that a services-focused company like IBM would buy i2, since i2 was transforming itself from a software company that provides services to a services company that provides software.  JDA was viewed as an unlikely suitor, not only because the company is very products-focused, but also because there was a fair amount of functionality overlap between Manugistics and i2 solutions (JDA had acquired Manugistics in 2006). 

But as I said in August, the main reason for this acquisition was JDA’s desire to grow its presence in Manufacturing.  Manugistics gave JDA a foothold in Consumer Packaged Goods (CPG), and i2 was to give them a portfolio of solutions and clients in Semiconductors, Electronics, and other discrete industries.  For i2, the acquisition promised to remove the cloud of uncertainty that hung over the company, offering customers and employees a more promising and stable future.

“Then leaf subsides to leaf.”

And so i2 subsides to i2, and JDA to JDA.  On the positive side, I don’t think this acquisition would have gone as smoothly as JDA was expecting.  For one, there was a huge mismatch between their corporate cultures (the doom of countless acquisitions), and for this reason, many i2-ers are breathing a sigh of relief today.  But on the flip side, the cloud of uncertainty is back over i2, which could dampen its sales activity in 2009.  The company also lost some talent over the past few weeks (although their core TMS team, the “bread and butter” of i2, is still intact).  In short, i2 has to figure out how to grow again.  i2’s third quarter financial results showed more of the same (revenues were down 3 percent the first nine months of 2008 compared to the same period a year ago).  But the company has over $221 million in cash plus another $20 million coming in three days (assuming JDA pays it).  Cash is king in a down economy, and it should help i2 weather whatever sales impact comes from this failed transaction or the economic downturn (at least in the near term).

From a purely financial standpoint, pulling out of the deal probably makes sense for JDA (despite the $20 million penalty).  The credit and financial markets are drastically different today, along with the value of i2’s stock, than when the company completed its due diligence just a few months ago.  There is a lingering danger, however, for both i2 and JDA.  i2 shared a lot of intellectual property information with JDA, as the latter worked to formulate a unified product roadmap.  This knowledge could help JDA when facing i2 in a sales situation.  But JDA also has to tread carefully moving forward with its R&D efforts, or it could expose itself to future litigation from i2 (just ask SAP who settled a patent lawsuit with i2 for $83 million this summer).

“So Eden sank to grief,
So dawn goes down to day.
Nothing gold can stay.”

This was Mr. Frost’s poetic way of saying things change in life, that what’s bright and shiny today will be dark and dull tomorrow (just ask the automotive guys).  Let’s hope brighter days are in store for both companies in 2009.