Baan seeks suitor to save spot on market

The clock is ticking for Baan, the Dutch business management software company. Baan has less than four weeks to raise the equity required to continue trading on the blue chip index of the Amsterdam Stock Exchange, or risk being bumped to a separate listing category.

Baan's shares today dropped to a five-year low of $5.03 after the company was briefly suspended from trading on the exchange yesterday. At the time, the software maker said it has just $9 million in shareholder equity and $197 million in cash.

Baan--alongside competitors SAP, Oracle and PeopleSoft--rose from obscurity in 1994 to become one of the fastest-growing software makers. Baan reported $684 million in revenue for 1997, up 65 percent from 1996.

While bigger companies such as SAP targeted the Fortune 1,000, Baan sold its sophisticated back office software to midsized companies, forging tight alliances with both Microsoft and IBM. Flagship client Boeing, which has stood by the company during its financial woes, recently issued a press release citing its confidence in Baan.

While rivals PeopleSoft and SAP have started to make headway in their own financial recovery, Baan remains stymied by financial and management troubles that seem to have spiraled out of control. Baan's market value has plummeted to $1 billion from more than $8 billion in two years, while shares have fallen 50 percent this year.

The company is also suffering inside a leadership vacuum. Just days after chief executive Mary Coleman left in January, long-time chief financial officer James Mooney followed suit. Replacing both are Pierre Everaert as interim CEO and Rob Ruijter as CFO.

Yet with an installed base of about 15,000 customers and well-respected technology, no one believes 22-year-old Baan is going to disappear completely. Most likely, analysts say, the company will become a takeover target, either as a complete package or in parts.

Stephen Palfrey, a financial analyst at Sanford Bernstein & Co., said at $5 a share, Baan has become a buyout target.

"We're in a range now that it would be a much more attractive acquisition than it was a month ago," he said.

Palfrey argued possible suitors could include J.D. Edwards, a midmarket ERP software maker that might want the company for its international clout. Another candidate is i2 Technologies, a high-flying supply chain software maker that could tap Baan for its high-end front office and supply chain software. Lastly, U.K.-based ERP software maker Geac could consider a buy to absorb Baan's customers. Geac, known as a firm with an aggressive acquisition strategy, bought JBA in September.

Palfrey argued that any acquisition will pose software integration problems, which could make a deal difficult. AMR research analyst Jim Shepherd said the pieces of the company are worth much more individually than combined, given Baan's current market cap.

"The company is an absolute bargain today," Shepherd said. "(Baan) is crippled at the moment. I can't imagine how you would sell Baan or its products to anyone today given the amount of (bad) publicity and management and financial troubles they've had."

With a cash burn rate of $40 million to $50 million per quarter, shareholder equity is now negative at a loss of $1.34. Additionally, Standard & Poor's has cut Baan's credit rating to essentially a junk-bond status.

Baan has hired Lazard Freres to shop the company to investors. The company may consider selling its customer relationship management software unit, called Aurum, its scheduling and planning software unit Caps Logistics, or its sales software company called Beologic.

Baan already unloaded its Coda financial software division for $50 million and expects to make $30 million from the deal when it closes this month.

Baan may also find a white knight in Fletcher International, which last year made a $75 million equity investment in Baan as the company worked to recover from its tumble in late 1998 when it posted a $32 million loss. The company recently reported that it lost $289 million in 1999.

Many U.S.-based financial analysts have already dropped coverage of the company. Prudential dropped research coverage last week. CIBC dropped coverage last month

"No one likes to be associated with it anymore," an analyst said today. The financial situation of Baan is critical, HSBC Investment Bank of London wrote in a report yesterday.

Despite Baan's current troubles, the ERP software market overall has the potential to ride the current business-to-business software wave. Forrester Research predicts the business-to-business e-commerce market will exceed $1.3 trillion by 2003. Baan's latest product, called E-Enterprise, includes separate applications that help companies set up Web-based storefronts, online procurement, and product configuration.

Noting other ERP companies that have weathered financial troubles worse than Baan's, Shepherd said the company has hope if it focuses on its core software.

"The good news is that Baan is perfectly capable of recovering," Shepherd said.