CurrentOfferings.com Story:

Internet & Technology: Nonquiet Salesforce CEO Might Have Forced Company To Delay IPO

Investors Business Daily, J. Bonasia, May 18, 2004

There's "quiet" -- and then there's Marc Benioff, the founder and chief executive of Salesforce.com.

The company plans to soon make its initial public offering, but people close to the situation say the IPO has been delayed because Benioff has failed to be quiet enough.

Securities and Exchange Commission guidelines caution top executives from any actions that might be construed as trying to pump up a stock before an IPO. This has led to what's called "the quiet period." Most every executive and company declines to make most any comment, citing the "quiet" period, usually for at least 30 days before an IPO.

But a 2,448-word story in the May 9 New York Times featured a day in the life of Benioff, with the reporter shadowing the CEO.

"I was speechless" after reading that article, said David Menlow, president of IPOfinancial.com, a research firm. It "must have caused an upsetting situation" for company attorneys and lead underwriter Morgan Stanley.

"I thought it was a quiet period," Menlow said. "I was very surprised that Morgan Stanley didn't lock him in a drum and say you cannot promote yourself."

Benioff's decision to grant the Times such access so soon before an IPO is a "highly unusual situation," said Larry Soderquist. He's a Vanderbilt University law professor and attorney with law firm Baker Donelson. The Baker is former Sen. Howard Baker.

"I'd be very concerned, either as an SEC commissioner or a lawyer representing the company," Soderquist said.

The company and Morgan Stanley might well be concerned.

Benioff has pulled out of a planned appearance Tuesday as a featured speaker at the Software & Information Industry Association summit in San Francisco. That 11th-hour decision, say some observers, stems from worries that Benioff has been too high profile pre-IPO.

Salesforce's IPO already has been delayed once, and now has been once again. The first delay came after federal regulators reportedly required the firm to change the way it accounts for sales commissions.

The company filed to go public way back in December. After that first delay, sources say the company had planned to price its IPO on May 25. Now they say the IPO likely will be delayed as a result of the May 9 Times story.

A Salesforce spokeswoman -- citing the quiet period -- declined all comment. So did a Morgan Stanley spokeswoman and an SEC spokesman. Benioff's office didn't respond.

Salesforce has pioneered an approach of leasing business software to companies as needed, rather than the common practice of selling software licenses. Salesforce delivers the software to corporate customers via the Internet.

It's had success, and it expects to raise some $80 million in the IPO.

The delays are quite rare, says Menlow, though IPO guidelines have always been murky.

"And for some CEOs who have never brought a company public, it's new territory," he said. "In their exuberance, they don't know how to restrain themselves. "Visibility is a gray area, but a very dangerous area."

Still, observers agree that executives should be -- and almost always are -- extra cautious in saying anything that could be perceived as hyping the company or stock pre-IPO.

Indeed, the Times story itself said Salesforce's attorneys were vexed by Benioff's decision to grant "hours of one-on-one time" to the Times reporter on the day he followed the CEO around, even listening in on a sales call. In the story, Benioff refuses to answer some questions, citing the quiet period.

Two legal scholars and two IPO trackers were hard-pressed to name a precedent for the delayed Salesforce IPO.

One cited a case in which the SEC forced Webvan Group, the failed online grocer, to delay its IPO for a monthlong cooling-off period in 1999. Webvan had discussed sales information on a conference call with institutional investors. A reporter listening in on the call reported the sales news, which wasn't in Webvan's prospectus.

The Salesforce case is much different. The Times article includes a quote from former Salesforce CEO John Dillon: "There's quiet, and then there's Marc's version of quiet."

Investors could use Benioff's version of quiet against the company, says Soderquist. If shares fall after the IPO, he says, investors might argue that Benioff's actions violated the spirit of the quiet period.

"Every time a stock goes down after an offering, investors look at the prospectus for glitches," he said. "Giving this kind of access to a reporter could make the company responsible, as if they had published the piece themselves, or taken out an ad."

Benioff clearly should have declined to participate in the Times piece, says Jeff Hirschkorn, a longtime IPO tracker with research firm Current Offerings.

"People may have perceived it as a violation of the quiet period," he said. "If I was Morgan Stanley, I wouldn't have allowed it."