Baan Posts $236 Million Loss and Sells Off Coda for Nearly $40M Less Than It Paid

Baan Posts $236 Million Loss and Sells Off Coda for Nearly $40M Less Than It Paid
P.J. Jakovljevic - February 25th, 2000

Event Summary

On February 3, Baan Co. posted a fourth-quarter loss of $236 million, in line with the profit warning that the Dutch business software giant issued last month. The loss compares to a loss of $295 million in the same period of 1998. On a per-share basis, the company lost $1.06, compared to a loss of $1.45 in the same period of 1998. On a more positive note, the company posted a 92 percent jump in license revenues in the fourth quarter to $49 million vs. $25.6 million in the same period of 1998.

Pierre Everaert, the interim chief executive, said the company's reorganization would cut costs by up to $25 million per quarter "to help provide us with the financial resources to maintain our investments in research and development and customer support capabilities." He said he was encouraged by the more than 700 licensing deals achieved in the quarter with new or existing customers. "Baan's cash and marketable securities balance ended at a year high of $196.7", Everaert added.

Last month, Baan saw a third of its market value vanish after it announced the resignation of Mary Coleman, Everaert's predecessor, and restructuring plans that would result in a fourth-quarter loss of $240 million to $250 million. Ten days later, chief financial officer James Mooney resigned.

Everaert also said "sales execution" is one of the key challenges now facing the company. He said that problem has been tackled by filling two key positions over the past two weeks: Mike Shinya as executive vice-president of worldwide sales and Paul Daly as president of the Americas. Baan recorded $168 million of non-recurring charges related to the reorganization. These include asset write-downs, restructuring activities, increases in reserves and allowances, and other one-time charges. The company also incurred $23 million of planned increases in cost and investments during the fourth quarter in anticipation of improved revenue performance.

On February 8, Baan sold its Coda financial applications unit to UK firm Science Systems for the bargain basement price of $50 million in cash. The move followed rumors of a sell-off last April after Phil Dawes, a senior manager and one of the brains behind Coda, quit the company. The British accounting package vendor was acquired by Baan in February, 1998, for $86.6 million.

In a prepared statement, company officials said the sale would enable it "to concentrate on leveraging its core strengths in integrated ERP, supply chain and customer relationship management, while at the same time e-enabling and extending those products into the business to business ecommerce space". They also said the company would record a gain of $30 million for its next fiscal quarter related to the transaction. But the figure is derived after deducting the residual amount left on its books from the original acquisition fee from the current cash sale price. Ironically, the deal was also brokered by Klass Waganaar, who was chief financial officer when Baan originally purchased Coda.

Market Impact

Baan's story is a bleak one. The company has reported two consecutive years of losses and declining revenues, and has struggled to integrate products gained in numerous acquisitions during the last few years. While the future holds a continued uphill battle for Baan, the possible silver linings are the significant license revenue increase in the last quarter and reassuring statements of commitment from Boeing, its crucial customer.

The move to sell Coda comes as no surprise to us. As a matter of fact, we predicted Baan would divest some of its business units in an effort to regain its financial footing. Its acquisition of Coda was the epitome of a 'wild goose chase', in an effort to enhance a very basic financial functionality within its core ERP product. The proper integration of the two products has never been consummated, and therefore not many existing customers will be particularly affected by this spin off. The Coda Financial product is suited for financial-services, banking, and insurance companies, while Baan's core market is in the manufacturing and retail sectors. Though Coda has more than 2,000 customers, only 12 were also Baan customers.

We also believe that Baan should conduct a thorough scrutiny of the possible sell off of each of its remaining acquired businesses, including Aurum, Beologic, and Caps Logistics; in order to regain more financial stability and sharpen the company focus. Baan was doing best when it was focused on its core competency, namely the manufacturing sector. The recent acquisition binge has had a serious negative impact on its business.

User Recommendations

Users currently evaluating Baan products are advised to exercise extreme caution in making any critical decision about future partnership with the company, due to its dire present situation and very uncertain future.


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