Baan woes still mounting

ERP vendor Baan turns to Invensys to get it out of financial trouble
Written by Jeffrey Burt, Contributor

Baan Co.'s bleak prospects were further dimmed by last week's announcement that 1999 losses were $20 million more than had been reported in February.

Baan's report came as the Dutch company, with U.S. headquarters in Reston, Va., scrambled to persuade shareholders to acquiesce to a $713 million takeover bid by London-based Invensys plc., which has extended its deadline to complete the deal to July 25.

Invensys is demanding that 95 percent of Baan shareholders accept the takeover terms before the deal is completed, and one analyst said last week that the newest earnings report was a "thinly veiled threat to shareholders to go along with the deal."

"Clearly the board [of directors] of Baan is in desperate straits," said Joshua Greenbaum, an analyst at Applications Integration Consulting, in Berkeley, Calif. "I think the shareholders would be insane to turn this down. This is the only way to get any return on their investments."

Baan officials acknowledged the ERP (enterprise resource planning) company's existence depends largely on the Invensys deal going through.

The earnings numbers "confirm what we have been saying: Baan remains in a very challenging environment, and it remains management's strong view that the best path forward for the company is the proposed acquisition by Invensys," Pierre Everaert, Baan's interim CEO, said in a memorandum to employees issued last week. Everaert added that "there is significant uncertainty about our ability to continue as an independent going concern."

ERP vendors such as Baan have been struggling in recent years, reeling first from year 2000 remediation and declining IT budgets. The current onslaught of e-business—and the demand on companies to integrate their back-end systems with e-commerce platforms—has further squeezed Baan and others, which have not been able to adapt to the changing landscape.

Those problems are reflected in Baan's recent financials. The fourth quarter of 1999 was the company's seventh straight quarter of losses, totaling more than $650 million.

On Feb. 3, Baan reported losses of $289 million for 1999. However, adjustments made during the auditing of the company's accounts have pushed those losses to $309.6 million.

Now the company is turning to Invensys, an automation and controls company, as its last chance for survival.

Despite pleas from Baan officials, the British company continues to demand that 95 percent of shareholders agree to the takeover before it finalizes the sale. Baan's Everaert, in a memo July 14 to employees, said Invensys already owns 25 percent of the shares, and another 33 percent have been tendered to the company.

However, the Dutch financial services group ING had yet to give Baan a decision whether to sell its 5.9 percent share to Invensys. ING reportedly is reluctant to sell because it stands to gain more in tax deductions if Baan goes bankrupt than if it is sold to Invensys.

Everaert said Baan's management and supervisory boards continue to talk with those shareholders who are holding out on agreeing to the Invensys deal.

Greenbaum said he believes the deal ultimately will go through, if for no other reason than that if it doesn't, the company will die and shareholders will get no return on their assets. "It's a very grim picture," Greenbaum said.

Some Baan customers also are still hoping for the best.

"We're obviously following this situation very closely," said Dennis Leitner, senior IT director at Snap-on Inc., a maker of automobile tools in Kenosha, Wis. "We believe the potential acquisition with Invensys is going to be very beneficial if everything falls into place."

Snap-on currently can manage its Baan system, which handles such back-office data as inventory and finances, without Baan's assistance, Leitner said. The problem lies in the next few years, when Snap-on would need to upgrade its system.

"It's in our best interest for ... Baan to be successful," he said. "We do have an investment. Our present system is very good."

Brendan Shine, systems administrator with A-dec Inc., in Newberg, Ore., said he worried about where to turn if Baan were to shut down and he needed help with his company's Baan 4C3 system. "In a nutshell, [Baan] runs the company," Shine said.

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