'New' Lawson Software's Transatlantic Extended Enterprise Resource Planning Intentions

Event Summary

The rapidly consolidating enterprise applications market and the imperative that companies have a greater size and scope, seem to be forcing some unexpected, (and in some cases, ill-suited) parties to look for a "marriage of convenience".

Early in June, Lawson Software, Inc. (NASDAQ: LWSN), an enterprise solutions provider for service (non-manufacturing) organizations, primarily in North America, announced an all-stock merger agreement to combine with the Stockholm, Sweden-based Intentia International AB (XSSE: INT B), a similar sized software vendor, but one that offers solutions for manufacturing industries primarily outside of North America. Based on Lawson's closing stock price of $5.92 (USD) on May 31, 2005, the transaction was valued at approximately $480 million (USD). Lawson's stockholders are expected to owned approximately 57 percent of the "new Lawson", and Intentia's stockholders will own approximately 43 percent.

The transaction has reportedly been unanimously approved by the boards of directors of both companies. Symphony Technology Group and Tennenbaum Capital Partners, LLC, represent 38 percent of the capital and 49 percent of the votes in Intentia, and the deal is expected to close by December 31, 2005 (subject to certain closing conditions). Transatlantic transactions like this are indeed complex and subject to many conditions and a raft of regulatory and shareholder approvals. The Intentia board of directors has retained Deutsche Bank Securities as its exclusive financial advisor in connection with the offer, whereas the Lawson board of directors has retained Lehman Brothers.

Upon completion of the transaction, the company will operate under the name Lawson Software with US headquarters in St. Paul, Minnesota and with international operations headquartered in Stockholm, Sweden. Overnight, the transaction should create a new company with more than 3,500 employees serving approximately 4,000 customers in 40 countries through business applications for the services, manufacturing, distribution, and maintenance sectors, and spanning multiple industry categories. The parties believe bringing these two highly complementary companies together will create a new entity with significant global scale and a stronger balance sheet that should support long-term viability and investment in innovation. Also, customers should continue to benefit from the value of the solutions and technology that each company has developed for its target vertical markets. Because there is little product and geographic overlap, the new company believes it can retain service and support organizations for all existing products with little disruption.

This is Part One of a four-part note. Part Two will discuss Intentia. Part Three will analyze market impact. Part Four will cover challenges and make user recommendations.

Management Backgrounds

Richard Lawson and Romesh Wadhwani will serve as co-chairs of the new company. Richard Lawson co-founded Lawson in 1975 and has led the technology vision for the company throughout its thirty year history. Romesh Wadhwani, was chair and chief executive officer (CEO) of Symphony Technology Group, and has been a software industry executive and strategist for thirty years. He was the founder and former chair and CEO of Aspect Development, Inc., and the vice chairman of i2 Technologies following i2's purchase of Aspect in 2000 (see IBM is not Enough: i2 Snatches Aspect and SupplyBase). The two co-chairs provide more than sixty years of combined experience in the software industry. Further, the new board of directors will consist of three directors from Lawson, three directors from Intentia, and two new directors will be selected. Jay Coughlan, former president and CEO of Lawson, left the company and was replaced by Harry Debes, who will assume the same position in the new company.

Debes has been a senior executive in the enterprise software industry for more than twenty years. Previously, he ran Geac Asia-Pacific, Geac Enterprise Solutions for the Americas, and American field operations for the former J.D. Edwards, which included all sales and services. Following J.D. Edwards' acquisition by former PeopleSoft (which was later acquired by Oracle), Debes left to become president and CEO of SPL Worldgroup, a leading provider of enterprise software to the electrical utility industry. Thus, he brings deep knowledge of the enterprise software industry, proven business and operational skills, and a strong focus on delivering customer value and satisfaction to Lawson.

Upon the close of the transaction, Bertrand Sciard, president and CEO of Intentia, will become chief operating officer (COO) and will be responsible for all global field operations. Sciard's deep industry knowledge and global experience in sales and services should make him a strong fit for this global role. Before joining Intentia in March 2004, he was executive vice president (EVP) of Geac, and was responsible for all operations within EMEA and Asia Pacific. Previously, Sciard was the European managing director of former JBA Plc (now part of Geac), and president and CEO of Presys. He also held several senior roles at IBM for seventeen years.

Lawson reported revenues of $364 million (USD) in the fiscal year ending May 31, 2004, and Intentia reported revenues of SEK 2,983 million (approximately $406 million USD) for the fiscal year ending December 31, 2004. Pro forma financial information for the combined companies, using US generally accepted accounting principles (GAAP) ,was not available at the time, but will be provided in the Offer Prospectus and Lawson's Registration Statement on Form S-4 in the United States. Lawson and Intentia expect the net effect of the transaction will be accretive to earnings in the first year after the close of the transaction.

Merger Rationale

The Lawson and Intentia management cited a few compelling reasons for the rationale of this merger. For one, there is little product functional scope and industry focus overlap, since Lawson is well-regarded for its financial, human resource (HR), retailing and procurement management applications in health care, retail, education, government, banking, insurance and other non-manufacturing verticals (see Lawson's Approach to the Retail Market). The Intentia Application Suite (formerly known as Movex) is a hardcore industrial (manufacturing- and distribution-oriented) extended-enterprise resource planning (ERP) system, with specific focus on fashion and apparel (style), food and beverage, wholesale distribution, and asset-intensive and product servicing industries (see EAM versus CMMS: What's Right for Your Company? Part Three: Analysis of IFS and Intentia). The new company will specialize in serving medium and large enterprises with a more comprehensive product portfolio that encompasses ERP, enterprise performance management (EPM), supply chain management (SCM), enterprise asset management (EAM) applications, and product service management (PSM).

Further, as a result of complementary offerings, the two companies have little overlap (and conflict) with their respective products' scope, customers, industry focus, or geographies. This fit is expected to simplify the companies' integration, thereby minimizing customer impact. The combination should also simplify purchasing decisions for customers by offering more solutions from a single vendor, now with a larger scale and a stronger balance sheet. The minimal overlap is expected to provide near-term opportunities for cross-selling products to the combined customer base, and the new company pledges to provide solutions that serve a broad cross-section of industries.

Additionally, Intentia, based in Sweden, has a stalwart vendor status in the domestic Scandinavian region, with strong international coverage in Europe, and with some notable presence in Asia-Pacific. It was founded in 1984 and serves over 3,000 customer sites in some 40 countries around the world, with the product that supports as many different languages. Lawson serves primarily North American markets, has a limited number of offices and affiliates serving South America, Europe, and Africa, and a limited number of supported languages. Yet, North America is a region that Intentia has repeatedly tried and failed to penetrate over the past decade. Thus the two companies will be able to benefit from each other's market, without necessarily cannibalizing each other's customer base.

Thus through these regions, the new company will also have a large, fairly balanced global presence with approximately 45 percent of revenues from North America, 45 percent from Europe, and 10 percent from the Asia-Pacific region. Moreover, at this rate (and given there are no other blockbuster mergers in the meantime), the new company will, become the largest enterprise applications supplier dedicated to the mid-market customer segment, offering solutions that can be scaled to meet the needs of even the largest enterprises. Lawson will bet on the need of the upper mid-market for a provider with global reach, a broad product portfolio, industry-specific solutions across multiple categories, world-class partners, and a staying power. In terms of the geographic (and in part of vertical focus) complementary synergy, this merger resembles the respective mergers between former Microsoft Great Plains and Navision (that have subsequently formed Microsoft Business Solutions [MBS], see Microsoft 'The Great' Poised To Conquer Mid-Market, Once and Again) and that between Epicor and Scala (see Epicor's Mid-Market Pitch Becomes Higher for (One) Scala).

Last but not least, there is a technology-based compatibility, as both vendors are strongly aligned with IBM and Sun Microsystems and base their development platforms on IBM technology. Thus they somewhat resemble SSA Global's acquisition of former Infinium and interBiz (see Is SSA GT Betting Infini(um)tely On Acquisitions?).

Intentia was the first full-fledged ERP vendor to introduce a completely Java-based ERP suite in 1999 (see Intentia: Java Evolution From AS/400), while Lawson's recently announced its service oriented architecture (SOA) framework, codenamed Landmark, should work well with Intentia's code base. Consequently, this combination positions Lawson in the top tier among enterprise applications providers worldwide and creates one of the largest providers of enterprise applications for IBM environments. Intentia is among the top IBM eServer iSeries platfrom (formerly AS/400) partners globally, while Lawson has been a leading provider of enterprise applications for the platform for many years too. For an exhaustive analysis of the "new" Lawson's technology blueprint, see "Can Java Perk Legacy Enterprise Resource Planning Systems?".

This concludes Part One of a four-part note. Part Two will discuss Intentia. Part Three will analyze the market impact. Part Four will cover challenges and make user recommendations.

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