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Baan revives, but MS bid is probably smoke

A small stake, however, may be feasible

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There's great interest at the moment in Baan's share price, which started its dive last October when Jan Baan announced at BaanWorld in The Hague that the company had just ended thirteen consecutive quarters of meeting financial analysts' expectations, and that it had started a partnership with Microsoft.

The challenge was to know which was the bad news: the 1998 loss of $315 million, following a profit of $77 million in 1997, or the pythonic embrace with Microsoft. The eponymous Baan brothers have now slunk off, as has the luckless Tom Tinsley, who was briefly in charge before he decided to pursue new business opportunities, as they say. There was no mention of how generously he was severed, but those old McKinsey hands learn about looking after themselves, if nothing else. So then it was Mary Coleman's turn.

Meanwhile, the share price started to move up from its low of Euro 6.40 to 15.75 yesterday, but still far below its mid 40s level last year. The Dutch, who had been feeling pretty sore at the decline of the once local hero, were ecstatic, and looked forward again to buying bigger caravans and even boats to be towed behind them.

But what had sent the price up? There are two hypotheses. One is that there is some renewed confidence that Baan was somewhat harshly treated by the market, and was worth more. Although a small loss is expected this year, next year is expected to see profitability back to something better than 1997 levels.

The departure of the Baan brothers and their financial machinations increased confidence, as did the removal of a great deal of dead wood. The alternate hypothesis is that Microsoft was going to take the company over. This seems unlikely, and assiduous enquiries in the Netherlands have failed to find any source or basis for the story, although it is widely quoted.

Microsoft does not comment on these sort of things, and Baan denied it - but they would, of course. A takeover appears unlikely as there would be considerable regulatory problems. However, don't discount a strategic investment by Microsoft in Baan to boost the share price of its partner, much as Microsoft did for Apple as a reward for going to IE as the default browser. If so, the guiding Microsoft light in any deal will be Jeff Raikes, we predict.

An added takeover problem would be that Microsoft has quietly gone big time with SAP, which is looking sickly this week following a critical WSJE story. By the way, don't believe those stories about Windows profits being on sheets of paper, as Schmalensee told Judge Jackson during the trial.

If the other set of books is not deeply inside the SAP system, then they are probably to be found in Microsoft's dozen or so AS/400s that are used through a service company to do its distribution. After all, you wouldn't want to bet your company on NT, would you? And why else would Microsoft have had a corporate heart attack when the DoJ heavies turned up at Fort Redmond to get some financial data, just as the trial started?

All things considered, we suspect that the Microsoft rumour of a complete takeover is just that, and fuelled by Dutch caravaners hoping for an upgrade before they head south. ®

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