New subsidiary threatens Baan's ERP credibility: analyst

Baan's decision to create a separate customer relationship management (CRM) subsidiary could further erode its credibility and viability as an enterprise resource planning vendor, according to analysts.

By turning the Aurum Software unit it bought with great fanfare three years ago into a separate subsidiary, struggling Baan appears to be setting the stage for a possible spin-off.

While officials said the company hasn't made a definite decision to sell all or part of the CRM operation, they conceded a range of financial options are being considered as part of Baan's attempt to rebound from six straight quarters of losses.

Laurie Orlov, an analyst at Forrester Research, said spinning off Aurum could give Baan a fast financial windfall because of the high stock-market valuation that CRM vendors such as Siebel Systems enjoy.

But it would also be "a throw-up-your-hands move" that shows Baan couldn't succeed in its effort to put together an integrated suite of front-office and back-office applications, according to Orlov.

"It's basically an admission of defeat," she said, adding that, for users, separating the CRM applications could further erode Baan's credibility and viability as an enterprise resource planning (ERP) vendor.

"Customers are very concerned, and Baan has to give them reasons to buy [more software]," she said. "Otherwise, it's looking like there might be only four ERP vendors in the top five."

David Dobrin, an analyst at Benchmarking Partners in the US, also described the potential CRM spin-off as a sign that Baan's financial problems are forcing the company to abandon its vision of offering a full suite of applications similar to those that Oracle and SAP sell.

"It's sort of sad," Dobrin said. "It is essentially giving up on an ambitious and difficult thing."

The CRM subsidiary will continue to rely on Baan's sales force to sell its sales-force automation tools and other front-office software products but will otherwise operate with global autonomy.

Baan officials said the legal work needed to set up the subsidiary should be completed by June, but a management team for the CRM operation is yet to be named.

Baan also said that it has signed an agreement with financial investment firm Bear Stearns International, under which it can ask Bear Stearns to buy up to $237.2 million (150 million euros) worth of stock during the next 18 months.

Bear Stearns was given 1.5 million shares in return for signing the agreement, Baan said.

The company also announced another departure from its supervisory board of directors - the second in a week and the fourth in a month. Joop Janssen, who had been the interim chairman of the board, has taken a leave of absence for health reasons.

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