Lawson Accepts Golden Gate Takeover, Bucked Down to Private

May 2, 2011 Timothy Prickett Morgan

All of those shareholders of Lawson Software who had been hoping that perpetually hungry software giant Oracle might take a run at its much smaller software rival are no doubt sorely disappointed–and perhaps have lost a bit of money–now that Lawson last week accepted the original and unsolicited offer that Golden Gate Capital and its ERP software brand, Infor, made back in March.

Golden Gate offered $11.25 per share to take over Lawson. The reason for disappointment, if there is any, is that Lawson shares were trading as high as $13.06 a pop when people thought that someone might make a better offer, or that Lawson might play coy and hold out for more dough from the private equity giant. That original deal valued Lawson at $1.83 billion, net of cash and debts, and after Lawson said this morning before Wall Street opened that it had accepted the deal, the shares bled off 8.5 percent to $11.10.

Lawson is a public company that is the result of the merger of Lawson and Intentia International a few years back. And by accepting the offer, if Lawson shareholders do, they will be letting Golden Gate take Lawson private and merge it with the Infor application software unit it controls. The deal represents a 14 percent premium over Lawson’s share price on March 7, the last day before rumors started going around that Lawson was in play; Lawson’s top brass came clean on March 11 and admitted that they had retained Barclays Capital to analyze the Golden Gate/Infor offer and to look at other options. The deal also values Lawson at about two and a half times trailing 12-month revenues through the end of February 2011, and it is a 28 percent premium over Lawson’s closing price on January 10, which is the day before Lawson signed a non-disclosure agreement with Infor and the dance began.

Activist investor Carl Icahn, who has built up a 10.8 percent stake in Lawson, has been clear that he wants the company to be sold. The statement put out by Lawson and Infor announcing the deal has been accepted said that the Lawson board unanimously approved the deal and that board members, who collectively own approximately 9 percent of the company’s shares, have agreed to the deal Golden Gate is proposing. So that is basically a fifth of the shares already accounted for, if Icahn likes the numbers.

In that statement, Lawson said that it reached out to other potential buyers who might have wanted to acquire all or bits of Lawson as part of its due diligence. Lawson would not confirm if it had received any offers from another party. “There was no other superior proposal that we received,” Terry Blake, Lawson’s spokesman, said when asked about other offers. “The board determined that this was the best path for stockholders.”

It certainly was the best path for Charles Phillips, the ex-president of Oracle who left the software giant a few months back to become chief executive officer at Infor.

In a letter to customers, Phillips talked mostly about the synergies between Infor and Lawson, which are each composed of multiple firms with long and deep histories in the midrange applications space. Phillips also wanted to assure companies that Lawson’s S3 and M3 products would continue to be enhanced.

“Lawson customers can rest assured: Product investment, innovation and customer success will be our key areas of focus,” Phillips wrote. “The Lawson products customers have come to rely on will receive additional investment and enhancement, and we plan to deliver incremental value quickly. Infor is already on a path to accelerated innovation and recently announced a significant investment of 400 additional engineers in research and development.”

It looks like Golden Gate wants to take the best software from both companies and blend them. The synergies are thus: Lawson’s financials and human resources will be combined with Infor’s manufacturing, supply chain, workforce management, and asset management products to create a “rich, comprehensive ERP suite.” Because the Infor and Lawson applications have been tweaked to expose themselves as services, they can be integrated through middleware, and Phillips said this integration will begin right after the transaction closes.

The two companies together have about 75,000 customers worldwide, with “depth and breadth” in healthcare, state and local government, wholesale distribution, fashion and retail, food and beverage, equipment rental and service, and process and discrete manufacturing. And they want to expand into new industries going forward. And Phillips claims that together Infor and Lawson have already deployed over 1 million seats running their applications “in the cloud,” and the enlarged Infor will ramp this up, too.

Phillips even took a dig at his old employer, Oracle, which was interesting.

“Without the need or desire to build data center infrastructure, we can dive deeper into industry business processes,” Phillips wrote in his letter. “Expertise is directly related to specialization. We will be indifferent as to whether that infrastructure comes from third parties or the cloud. Infrastructure only exists to run applications. The resources of Infor and Lawson will translate to 8,000 technical professionals focused one thing: enterprise applications. That focus will allow us to be more responsive to customers’ application needs.”

Maybe Phillips was not so much behind Oracle’s $5.6 billion acquisition of server maker Sun Microsystems last year as we were lead to believe?

Infor has somewhere between $1.8 billion and $2.2 billion a year in revenues, while Lawson had $745.1 million in revenues in its trailing four quarters ahead of the deal being disclosed. Infor brings 70,000 customers and 8,000 employees to the combined companies, with Lawson having 4,500 customers and 3,900 employees.

The next step in the deal is for Lawson to file a 14A proxy with the Securities and Exchange Commission, which should happen in the next couple of weeks. Then Lawson needs to get shareholder approval and then approval from antitrust regulators. It is hard to imagine anyone outside of the United States or the European Union objecting to the deal, and frankly, it is hard to imagine the regulators for these two federated governments making much of a fuss. If Oracle was buying Lawson or Infor, the situation might be different. The expectation is that the deal will be done sometime in the third quarter.

Infor and Lawson execs were busy in meetings last week to start their planning, but we are scheduling some time with Duncan Angove, president of products, marketing, and support at Infor, to talk about roadmaps and other issues relating to the many ERP suites that will now be under the same roof.