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Baan sells to Invensys in $708 million deal

The financially troubled Dutch business software maker, long rumored as a takeover target, agrees to sell its operations to the U.K. automation equipment maker.

Financially troubled Dutch business software maker Baan today agreed to sell its operations to Invensys, a U.K. automation equipment maker, in a cash deal worth 762 million euros ($708 million).

Baan, reeling from seven straight quarters of losses, has been rumored as a takeover target for some time. In recent months, companies such as Microsoft, database software giant Oracle, U.K.-based business software firm Geac and Invensys were rumored as possible suitors for the struggling firm.

Gartner analyst Bruce Bond says the enterprise resource planning market is weak and will continue to consolidate. But Baan's problems were not just the result of a weak market.

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The news sent Baan shares tumbling. In early trading on the Nasdaq, shares of Baan shed $1.47, sliding about 35 percent, to $2.72. In European trading earlier today, Baan shares rose 15.7 percent to 3.03 euros ($2.82) following the announcement, while Invensys shares were down 17.3 percent to 248.5 pence ($3.71).

Invensys will pay 2.85 euros ($2.65) per share for Baan, an 8.8 percent premium on yesterday's close. Invensys, which has a market capitalization of about 9.3 billion pounds ($13.9 billion), said it will also absorb reorganization charges as it attempts to return Baan to profit within a year.

Once a Wall Street favorite, Baan has seen its market capitalization plummet to roughly $530 million from more than $8 billion in two years. In its latest quarter, Baan said total revenues sagged to $106 million from $176 million, while license revenue from the sale of new software slid to $27 million from $65 million. At the time, analysts expected the company to report total revenues of about $130 million.

As part of the proposed deal, Invensys said it will form a software unit called Invensys Software and Systems (ISS), with $2 billion in annual sales, that will incorporate Baan's full suite of Web-based business management applications, such as its core enterprise resource planning (ERP) software. ERP software helps automate a company's back office system, including its human resources, financials and manufacturing needs.

Harry Tse, an Is the enterprise resource planning market dead?industry analyst at Boston-based Yankee Group, said today's move marks an inevitable one for cash-strapped Baan, whose quarterly losing streak was making it almost impossible for the company to remain afloat.

"From Baan's perspective, they really had no alternatives," said Tse. "They have taken in so much debt...They had no choice" but to sell their operations.

Baan, which currently has about 4,300 employees, will continue operating under the Baan name and compete in the software market with the full range of its business software products. Baan's Barneveld offices in the Netherlands will remain Baan headquarters, while offices for the firm's U.S.-based operations in Herndon, Va., will become the home of the newly formed ISS division.

"(The deal) is good for customers because it provides some stability in terms of the Baan company," said Meta Group analyst Doug Lynn. "The products are good, but the people are important. Employees are less apt to leave (now)."

Tse said that Invensys, which is known for its manufacturing automation software and other products aimed at the manufacturing industry, is poised to benefit from Baan's high-end software line and a large client base, which still includes aerospace heavyweight Boeing.

Lynn, noting Baan's large installed base in the United States, said, "This (deal) gives Invensys a U.S. opportunity to walk in the door and be able to sell its own products on top of Baan software."

Tse added that marketing Baan's products in the United States is one of Invensys' near-term challenges. "Baan still has very decent products. The CRM products (it acquired) from Aurum are top-notch," he said. "The Baan products are going to be sold through Invensys' large distribution channels, but Invensys really never demonstrated its willingness to spend marketing dollars, especially in North American markets."

Baan was late to embrace the Internet, while rivals SAP, Oracle and PeopleSoft have all been busy shifting their focus from core back office software to provide more Web-friendly front-office applications such as customer relationship management (CRM) and procurement software.

Baan's chief executive and financial officers quit in January after failing to stem losses, and the company began seeking a buyer as it watched its stock tumble to the low $2 range.

Invensys, which currently has about 90,000 employees, said it expects to incur roughly $400 million in restructuring charges over an 18-month period from the date of the acquisition. The ISS division will be managed by Bruce Henderson, currently a division chief executive at Invensys, and Laurens Van der Tang, an executive vice president at Baan. Van der Tang will also become president of Baan upon closing of the deal, the companies said.