Microsoft To Buy Danish Software Company

Microsoft agreed Tuesday to buy Danish business software vendor Navision for $1.3 billion in cash or stock, in order to gain a foothold in the European market for apps aimed at small and midsize companies. But a Microsoft executive says the company doesn't plan to sell enterprise resource planning products directly to large customers.

Microsoft offered 300 Danish kroner, or about $37 per share for Navision, a 12% premium over Navision's (NAVI.CO-Copenhagen) Monday closing price of 267 kroner. The offer represents a 36.7% premium over the price of Navision shares before the firm's April 30 announcement that it was seeking a possible buyer. Navision's board will recommend that its shareholders accept the offer, and Navision shareholders may opt to take Microsoft stock in lieu of cash. Shares of Microsoft (MSFT-Nasdaq) traded $1.20 higher, at $49.82, Tuesday afternoon. The companies expect the transaction to close in August.

Navision, which reported about $181 million in revenue last year, sells ERP software, including the Attain and Axapta lines, to customers such as Ikea, Adidas, and Steinway & Sons. Microsoft plans to make Navision part of its business solutions division, which also includes the former Great Plains Software, an ERP vendor that Microsoft bought last year for $1.1 billion. Microsoft senior VP Doug Burgum says the company wants to increase application software sales to small and midsize companies with annual revenue of up to $800 million. "That's almost an identical target market for Navision," says Burgum, formerly CEO of Great Plains. Great Plains generates about 80% of its revenue in the United States, and Navision books about 83% of revenue in Europe.

Microsoft will rely on resellers to reach these customers and won't build a sales force to sell ERP apps directly to large businesses, Burgum says. If anything, Microsoft could price Great Plains and Navision products "more down market" in the future. Investors and industry analysts have questioned whether Microsoft's recent acquisitions signal an intent to compete more keenly with vendors such as SAP and Siebel Systems Inc. for sales to large companies.

European Hub

Navision was formed by the 2000 merger of Navision Software and Damgaard. It's still majority owned by its founders and has about 1,300 employees. Microsoft plans to make Navision headquarters in Vedbaek, Denmark, its hub for product development and operations in Europe, the Middle East, and Africa.

Navision on Tuesday reported that earnings for its third quarter ended March 31 declined 32%, to $3.05 million, while sales increased 17%, to $46.9 million. Higher sales and distribution costs were partly to blame, the company said. "Everyone has seen the last year as a tough time," John Frederiksen, president of Navision's U.S. subsidiary, said in an interview last week. But the company is taking market share from competitors, which include J.D. Edwards, PeopleSoft, SAP, and Siebel, he says.

Navision sells its products through about 2,300 resellers--mostly in Europe--and has sales, distribution, and technical agreements with Microsoft. "We want to deliver the products to the market that customers want and on the platforms they require, and today that is Microsoft," Frederiksen says.

Microsoft's acquisition of Navision would be its second largest. In 2000, Microsoft bought U.S. technical drawing software company Visio for $1.5 billion.