Category: Companies

The EU cleared the proposed merger between IBM and ILOG.  From the announcement:

Therefore, the condition regarding receipt of all necessary antitrust clearances, approvals and decisions from the European Union has been fulfilled and there are no remaining regulatory approvals or conditions to which the tender offers are subject other than the minimum tender condition of 66.67% as set forth in the tender offer documents.

In compliance with the timetable published today by the French Autorité des marchés financiers (AMF), the tender offer in France will expire on November 24, 2008. The tender offer in the United States will be extended accordingly.

I hate to be a broken record on this (there is an archaic metaphor), but note the URL for the IBM site with information on the tender: http://www-01.ibm.com/software/websphere/ilog_investor_confirmation.html.  Websphere (aka the group interested in ILOG’s rules work) continues to play the leading role in the merger from IBM’s side, if the URL is anything to go by.

Perhaps once the tender expires, we can start hearing from IBM/ILOG on how optimization and constraint programming fits into their strategies, since legal limits on their announcements will no longer be in force.

The “Official Response Document” that ILOG prepared (and posted on their Investor Relations site) responding to IBM’s offer is fascinating reading.  I particularly liked the “Historical Background” (pages 5-10) that begins with IBM’s orginal contacts with ILOG.  From an initial discussion of IBM’s licensing ILOG’s rules software in late 2006, ILOG seemed to quickly come “in play”.  New companies (called Company B, Company C, right up to Company F) began discussions with ILOG on purchasing all or part of it.   Clearly there was a lot of interest in ILOG! By late September, 2007, IBM stopped considering ILOG, only to reopen discussion in April 2008, resulting in a memorandum of understanding by the end of July.

Annex 1 (beginning on page 40 or so of the pdf document) was also interesting since it provides comparable firms (FairIsaac, SPSS and so on) as part of the financial analysis.

Reading through the document and the history, I was struck by how much “rules” was the initial driver of the acquisition, but also by how optimization was seen as a key aspect of the deal.  I don’t know who Companies B, C, D, E, or F were, but I think I am happy that IBM ended up as the partner in this deal.

Of course, all this is just personal opinion.  I don’t own any stock (any more:  I bought at the top and sold at the bottom, which is my general financial strategy) and, as my colleagues in finance remind me, am unqualified to truly evaluate the finances.  But I do recommend reading the document!

I had previously written about the exit of Gu, Rothberg, and Bixby from Ilog. I was curious where they would end up: Google, IBM, Yahoo? Somehow, I thought they would be together, but where? That has now been answered. Gurobi Optimization has gone live today. From their page:

Gurobi Optimization is in the business of providing robust, high-performance optimization software based upon the latest linear and mixed-integer programming technologies.

The computational progress in linear and mixed integer programming over the last twenty years has been nothing short of remarkable, enabling business, scientific and other applications that literally would have been unapproachable just a few short years ago. The Gurobi founders have been at the forefront of these developments.

The Gurobi suite of optimization products represent completely new implementations, redesigned from the ground up to fully exploit the latest mathematical and “engineering” improvements in the underlying methodologies, as well as developments in modern desktop computing hardware and programming environments; moreover, the Gurobi team is committed not just to providing the best technology now available, but to continuing to push forward the frontier of optimization solution capability.

Focused not just on the technology, Gurobi will also be introducing several new, more flexible delivery models for optimization technology, models that we believe will better serve our customers and the market in general.

I have to say that this makes me very happy. I really like CPLEX (IBM) and I really like Dash XPRESS (FairIsaac) But I really, really, really like groups of very smart, ambitious people fighting it out to see what really can be done in the field of optimization. This is great news for our field and I look forward very much to next year’s release.

added October 13. I have been asked to note that CPLEX is sold by ILOG, not IBM.  You can see some past posts on the proposed acquistion of ILOG by IBM, but that has not yet been approved by the powers that be.

i2 Technologies is going to be acquired by JDA Software for $346 million, continuing a wave of acquisitions in the optimization world (including ILOG and Dash). While this acquisition stays within the “supply chain optimization” space, it does cut down on the number of independent players. Manufacturing Business Technology makes an excellent point in the dynamics of this:

Ironically, ILOG may have contributed to the demise of several supply chain vendors—including i2—by selling its once-groundbreaking optimization technology to other companies wanting to create packaged systems. With so many so-called supply chain specialists relying on ILOG’s engine as the foundation of their systems, there was less differentiation in the market, and that made it easier for the Oracle’s and SAP’s of the world to move into the supply chain space.

Warrent Buffett has said “In business, I look for economic castles protected by unbreachable moats”. With great integer optimization codes available, the moat around supply chain optimization companies is quite narrow.

“A.L.” who frequently posts on sci.op-research notes

To improve service for Xpress-MP users even further, Fair Isaac closed
Dash office in Englewood Cliffs, NJ. This is what recorded message
says when office number is called. Guys from this office are still available and working from their
basements. The question is for how long.

I sent an email to Alkis Vazacopoulos who pointed out there is a FairIsaac NY office right
across the Hudson (11.5 miles away) in Manhattan where people are working. Alkis continues to be extremely upbeat about how Dash is doing within FairIsaac. I really don’t think this rather minor office move is worth getting worked up over! After spending $32 million on Dash (admittedly a small amount of money to FairIsaac, representing 4 or 5 months of corporate earnings), I don’t think they are going to mess things up in the first six months.

John Gregory, ILOG CPLEX Product Manager, posted this on sci.op-research:

The July 28 announcement of the agreement by IBM and ILOG was a surprise
to all but a few key members of the two companies. It will take literally
months, not days, before this transaction will be completed. Until then
an arm’s-length relationship must continue to exist between IBM and ILOG.
For these reasons, speculation about specific future product direction is
fruitless. The respective teams at IBM and ILOG have not yet even had time
to digest the news themselves. IBM and ILOG both have long histories of
supporting the OR community and leadership in that community. I have been
assured by an executive involved in the transaction planning that IBM
is keenly interested in CPLEX and the optimization products, and keenly
interested in preserving the business it generates and the customer
goodwill that this business has developed over the past 20 years. ILOG’s
optimization technology and technologists were considered a key asset in
the transaction.

John Gregory
ILOG CPLEX Product Manager

I agree about the leadership history of ILOG and IBM. Both as companies and as individuals within those companies, they have had a tremendous positive effect on our field. I look forward to company statements aimed not at the financial world (“This is a good acquisition for both IBM and ILOG”) but at the OR world. And I am sure those will be coming in time.

Lots of activity on the IBM purchase of ILOG, with most concentrating on the business rules aspect, which seems to be a driving force. A reader, in a comment, pointed to an article from InternetNews, quoting IBM’s Sandy Carter, VP of SOA (see: Ratliff was right. SOA is important!). Here is what Sandy says about optimization:

Meanwhile, IBM’s Center of Business Optimization, a group of consultants acquired when IBM bought PricewaterhouseCoopers Consulting for $3.5 billion in cash and stock in July 2002, uses Ilog’s optimization products heavily, Carter said. She noted that consultants can now more fully leverage tools such as Ilog CPLEX and CP Optimizer.

Besides not quite matching up with my memory of where IBM’s Center for (not of) Business Optimization originated (I visited Bill Pulleyblank, VP of the Center and a long time IBMer, not PwCer, and his group a couple of years ago), this description of how owning CPLEX can help IBM is a little worrying. The nice thing ILOG (and Dash) did as independents was to push optimization widely. Everyone should have some integer programming in their lives! Now, the two major optimization software systems are owned by companies that could stress consulting and services, not products.

Here are a couple of futures:

1. The full weight of IBM’s research and marketing arms is thrown behind products like CPLEX, improving the software and selling it far and wide, or
2. IBM realizes that it has a great competitive advantage in using CPLEX for projects that it is involved with, making it advantageous to limit the availability of the software.

I hope very much that the outcome of this is the first scenario. When I talked to Pulleyblank a couple of years ago, he very much wanted to create optimization products to sell, which is an encouraging sign for the future.

News from IBM: they are set to acquire ILOG. Among other things, ILOG makes CPLEX, one of the best linear and integer programming codes out there. Together with the previous purchase of Dash by Fair-Isaac, this means much of the operations research software world has changed hands in the last few months. It is interesting that most of the announcement is about rules, not optimization:

When completed, the acquisition of ILOG will strengthen IBM’s BPM and SOA position by providing customers a full set of rule management tools for complete information and application lifecycle management across a comprehensive platform including IBM’s leading WebSphere application development and management platform.

BPM allows companies to model, automate, monitor, and redesign business processes, such as opening a bank account, documenting a medical record, or customizing an insurance policy. It enables companies to improve customers’ service and increase efficiency, automation and accuracy. Using BPM, companies can examine tasks within an organization – particularly those done manually or involving significant document processing – and apply BPM to automate or streamline them. Such processes are becoming increasingly critical as business operations become more complex and information volumes grow at phenomenal rates. Building on IBM’s existing capabilities, ILOG will help customers manage change and complexity in their business processes by providing powerful, yet easy-to-use business tools.

For example, a business rule might be applied to elevate a premier customer to the front of a phone queue as part of a customer service process. ILOG’s Business Rule Management System provides users with tools that allow greater control over the criteria that determine how and when to route those premier customers. As such, businesses can accelerate the process of initiating policy changes that may be driven by market trends or competitive activity to ensure customer satisfaction is maintained.

ILOG technology has the potential to add significant capability across IBM’s entire software platform and bolster its existing rules management offerings. This includes improved rules and business optimization capabilities for Information Management offerings, better visualization for Lotus products, enhanced optimization within Tivoli solutions, and efficient supply chain management assets for planning and scheduling.

Stay tuned for the effect this has on CPLEX and the optimization world.  Note that this combination has to step through some regulatory hurdles, so it will be a few months (end of the year?) before ILOG people become IBMers.