Square Mile knives are out for Yurko

Invensys’ acquisition of dutch software giant baan was greeted with scepticism by the city. now pressure in the us housing market has forced it to issue a profits warning and led to renewed criticism of chief executive allen yurko

JUST WEEKS after completing its messy and protracted take-over of Baan, the last thing Invensys needed was to have to issue a profits warning.

Unfortunately for Allen Yurko, chief executive of the automation and controls giant, last week that is just what it had to do.

The City reacted by knocking a third off the company’s share price, triggering a tirade of negative comment in the financial press – some of it directed at Yurko personally.

When its Canadian-born boss announced in May that Invensys would be the ‘white knight’ to rescue the ailing Dutch management software specialist, he outlined how it planned to link ‘shopfloor to top floor’ and harness the potential of e-business to achieve enterprise-wide integration.

There was plenty of scepticism about the plan at the time, but it was generally accepted that Yurko had at least provided a vision for Invensys following its creation early last year from the merger of BTR and Siebe.

Invensys held its nerve during a tortuous acquisition process, and promised swift action to integrate Baan into its newly formed Software Systems Division. Six months working behind the scenes putting its new strategy in place was just what the doctor ordered for Yurko and his colleagues.

Unfortunately, events have a habit of causing chaos at the most inconvenient moment. An unexpected surge in the price of raw materials and pressure from the US housing market on its residential controls business – along with every UK business’s bugbear, the strong pound – left Invensys trading below expectations in the second quarter.

Integration on course The company was able to mix plenty of good news with the bad in its trading statement. Orders for telecoms, IT and electronic equipment have been surging ahead, and Invensys plans to increase capacity to meet the demand.

Integration of Baan into the Invensys business is on course, and the company says it will soon announce new contracts.

Yurko has also promised investors a wide-ranging cost reduction programme, which will see offices close around the group and thousands of jobs axed.

But the City declined to be reassured, preferring to see the statement as the final straw.

What for another business might have been forgiven as a blip, heralded a stampede out of Invensys as hostility stored up from the early days of its creation, and nurtured during the Baan acquisition, returned to haunt the company.

Since the dramatic share slide, there has been speculation that Invensys could itself become a takeover target, though the company insists it will press on with its strategy and reap the rewards in due course.

Rumours of Baan’s new owner itself getting snapped up by a bigger fish must be particularly disconcerting for Baan users. For all its reported problems, Baan is still a well-respected product and enjoys an unusually loyal following. It even has its own fan website (baanfans.com), something few enterprise software providers can boast.

Seeing Baan – once valued at more than £7bn – rescued from the brink of bankruptcy would have set enough nerves jangling among users. Now they will be hoping problems elsewhere in Invensys’ business don’t rock the boat any further.

Dan Roberts, analyst at industrial IT consultancy Cambashi, says concern among its user base would be entirely understandable given the rollercoaster ride Baan has endured.

Better off with Invensys However, he argues Baan users are still better off with Invensys than they would have been if the firm had gone under in the summer: ‘At least Invensys has shown a commitment to Baan,’ says Roberts. ‘If it had gone bankrupt, the user base would most likely have been bought by a rival, which would have been more interested in switching customers over to its own system.’ The worst-case scenario for Baan users, he believes, would be a reduction in the amount of R&D resources Invensys would be able to give to its enterprise applications business.

However, Roberts says there is no sign of this happening. In fact, Invensys has signalled a positive acceleration in its programmes in a bid to increase its market share.

‘If I was at Invensys, I would be more worried if I was in one of its more traditional divisions,’ says Roberts. ‘They know that for all its difficulties, Baan is really a very special product. That’s why they went through such a lot of hassle to buy it.