Crunch time at Invensys

Invensys was involved in the controversial and risky takeover of Baan, the Dutch software group just a couple of months ago, though Allen Yurko, the Chief Executive insists that poor results have nothing to do with that move.

BAAN achieves Q3 profit - will that save Invensys?

You will recall that we featured the Invensys acquisition of Baan in August 2000. The latest release of details of performance for the third quarter (Dec. 31 2000) shows that Baan has returned to profitability far faster than even Invensys had forecast. After nine consecutive quarters of significant operating losses, Baan's growth in revenues and successful program of cost reduction combined to achieve an operating performance above break-even. Baan grew total sales to $100 million, an increase of 37 percent over the prior three months. Looking forward, Invensys expects Baan's sales in the final quarter of the current fiscal year to be similar to the third quarter.

Invensys Update : will Yurko be dumped?

Yurko & Invensys - re-arranging the deck-chairs

Siebe acquired then ailing Foxboro and seemed to revive it through good management discipline. But Foxboro didn't grow and Siebe continued to acquire aggressively - Wonderware, Eurotherm, APV etc. In a defensive move to stave off acquisition by Emerson, Yurko merged Siebe with BTR (a similar UK hodge-podge) and changed the name to Invensys. The cute name didn't seem to make a difference - the decline continued. Yurko then unwisely acquired Baan, a bankrupt Dutch software company, compounding his problems.

A couple of years ago, Allen Yurko seemed dynamic and street-smart, the driving force behind the formation of Invensys. But recently he has become defensive, erratic and remote. His moves signal increasing desperation at his inability to generate the growth and success he had promised.

This past weekend (June 25, 2001) Yurko and other senior executives have agreed to pay freezes, even after sharp cuts last year. You will note that Allen Yurko still gets paid $1.2m, and Kathleen O'Donovan (CFO) gets about $700K.

Invensys in decline - Marshall's involvement

Most people assume that the remaining data centers will be at Foxboro, the UK, and other places that are "politically plugged in" to the decision makers. If you're an Invensys-company IT person who isn't at one of the privileged sites, you've probably already been told of your impending transfer to IBM. Of course, this assumes that Project Unity continues to its completion. When Yurko departs, who knows what the new CEO will do. The current "supporters" will quickly change their tune.

Lord Colin Marshall, Invensys Chairman of the Board, shares a lot of blame for the decline of Invensys. Marshall, who actually precipitated the Siebe purchase of BTR, openly boasted at the time that that his primary motivation was xenophobic (dislike of foreigners) and anglocentric. Interestingly enough, Marshall is now trying to point the finger at Allen Yurko and is Yurko's biggest enemy.

The BTR decision alone has cost Siebe billions in market cap. BTR has consumed 150% of the energy and efforts of Yurko's management team that should have been fixing what they had vs. buying and restructuring BTRs really lousy assets.

Some institutional investors have clamored for Marshall's resignation. The London Observer reported recently that Marshall is preventing the return of shareholder confidence. Marshall sits on lots of boards (10 or so, including British Airways) most of which are in not-too-good shape. He is rather arrogant, but the pressure must be getting through.

Some UK Invensys people have actually said, and I quote: "It is the Chairman's (Lord Marshall's) job to oust the CEO when needed". Ouch#@!*% Sources report that Marshall has already instructed recruiters to look for a replacement.

My own advice to Allen Yurko (which I know he doesn't need): "Watch your back!"

Invensys : Yurko prepares for October exit

Allen Yurko, the embattled chief executive of Invensys, appears to be preparing the way for a smooth, lucrative departure from the troubled engineering group. According to the latest annual report and accounts, Yurko's retirement package was "sweetened" this year to provide him with a potential $7.5m pay-off through his pension deal alone.

Yurko is now able to take the contributions totaling almost $450,000 a year which the company would have made into his pension fund in a single cash payment should he leave after the age of 50. The Invensys website lists his birth date as 25 Sep 1951. So, he should be able to exit on, or any time after, that date.

The sudden change in the small print of his contract increased speculation that he was prepared to take the blame for the 20% slump in share price to 120.75p yesterday (Thursday 5 June 2001). The stock price was over three times that before the big decline, with a 52-week high of 277.50p and low of 106.5. Early today (Monday 9 July '01), Invensys stock hit a low of 116.75p.

The sale of Yurko's $6m home in the Surrey stockbroker belt on the edge of the celebrity-packed Wentworth Estate in Virginia Water added to the speculation last night. The sale is said to be merely because Yurko is tired of commuting (from the home that was close to the old Siebe office in Windsor) and is moving his family to the similarly up-market Kensington area of west London.

An Invensys insider provided this not-surprising insight: "If Allen Yurko left, Invensys would collapse in short order - there is no internal succession."

Concurrently, 2 separate sources reported that Kathleen O'Donovan (Invensys CFO, who came with the BTR merger) is also looking for an exit. With the recent pay-cut and pay-freeze, and all options massively underwater, friends report that she wants a quieter life.

Invensys decline continues

The UK Guardian newspaper wrote this on July 12, 2001 (summarized here):

"Invensys came under fresh attack yesterday amid fears that management will be forced to revise earnings guidance and scrap plans to float its power systems division. A profits warning from US rival Emerson Electric was the catalyst for the latest speculation, which left Invensys shares down 11.25p at 115p. Over the past month they have fallen by 25%.

Traders were said to be advising clients that Invensys shares were heading for 100p and profit forecasts were too high in the light of recent poor news from the industry."

Yurko out - stock dives

The Invensys announcement commented that since Yurko is retiring at his own request, there will be "no severance payment to Yurko for his loss of office". What a bunch of baloney ! Yurko's ability to withdraw his pension plan as a $7.5m lump-sum was just approved weeks ago, indicating that he was about to exit any time after his 50th birthday (25 Sept. '01). With that in mind, note the dates above.

Chairman, Lord Marshall (when will he be booted?) was pleased that Kathleen O'Donovan, who had indicated that she wished to stand down, has accepted the request to stay with the Group and work with the new CEO. Of course, this is till he finds a new CFO replacement - which she surely knows, and probably accepted a "settlement" to not rock the boat with her own departure at this time.

On Tuesday, the Invensys stock traded as low as 73p, and ended the day at 85p. And now the group is being stalked by the likes of Alchemy (failed Rover bid, bought ICS and sold off parts) - for a break up play.

Invensys after Yurko

Either the global economic scene is worsening at an alarming rate, or some executives are clutching at the R-word as a justification for abysmal performance on their part.

Invensys profits are a 30% less than forecasted just 3 months ago, and the fact that the CEO is resigning indicates an acceptance that the short-fall may indeed be Invensys’s own making. Although that was not what Chairman Marshall or the departing Allen Yurko were saying.

As if the merger of Siebe and BTR had not been unfortunate enough, bundling Baan into the group compounded the problems. It may be that within Invensys there is a strong, specialist automation business just waiting to storm ahead as soon as the market improves, but Yurko failed to convince anyone of that.

The new CEO Rick Haythornthwaite (45) was introduced to Marshall by Yurko himself, just two weeks ago - there was no waiting-line for the role. The remuneration package that he is still negotiating will hopefully tie his rewards firmly into what he can achieve. Sticking to a one-year contract will be evidence of his determination to avoid any charge of "fat-cattery".

How can Haythornthwaite realize some shareholder value out of this sorry tale? A break-up of the business would certainly be tempting were it not for the fact that prices at the moment would be of the knacker’s yard variety. So he will try to impose new leadership and focus, while the company goes through another miserable round of job cuts.

Yurko, although he leaves "without a cheque to ease his ignominious departure", is hardly being consigned to poverty. A pension of close to $500,000 a year for a man not yet 50 should provide a cushion of comfort. If he opted to take a cash payment instead, he could be banking more than $7 million - not bad for eight years’ work and the achievement of reducing Siebe, once one of the great names in British engineering, to the muddle that is now Invensys.

Pinto Prognostications:

"Lord Marshall of Knightsbridge" who chaired the birth of Invensys, remains as chairman. One wonders how long he will continue to oversee this debacle? It will be interesting to see how he exits. If he had any class, he'd recognize the part he played in the whole ignominious BTR-Siebe linkup and remove himself. But, he is now busy pointing the finger at departing Yurko, so perhaps that is too much to ask....

Invensys is in bad shape. Most analysts think the net asset value is far below the already low stock. They expect Yurko to have taken a lot of financial short-cuts, which the new CEO will quickly disclaim, to make himself look "clean".

The major controls/automation companies are all interested - Emerson, Tyco, Siemens, Schneider are capable of doing a deal of this size, but they will NOT want all of Invensys, won't want to be doing the divesting of unwanted pieces, and won't want to take the write-offs.

So, the only acquirers left are the "vultures" - the people who will buy Invensys for the assets, and sell off piecemeal. Alchemy (who bought ICS, failed bid for British Rover) is on the list - but there are others. And, as the UK Times suggested, they'll pay "knacker's yard" prices.

Invensys : Yurko's definition of what IS is

In an interview with the UK Sunday Telegraph, a still unrepentant Allen Yurko brazened it out. He kept defending his strategy - merging with BTR and buying BAAN - with an arrogance reminiscent of the Clintonesque "depends on your definition of what IS is". Yurko on the merger with BTR : "The BTR deal was the smartest thing I have ever done." (Hmmm... that's not very smart.))

Recognizing how important BAAN was, perhaps "it should have reported directly to me." (That is an unfair slap to Bruce Henderson and others, who ran it admirably well, given the circumstances. Perhaps if Yurko had run it himself, it would not be in its present recovery mode...)

Yurko: "I do not accept that I have ever changed strategy." (Hmmm... in a fast-changing environment, that's a stupid statement.)

Yurko keeps falling back on his biggest excuse - that the US industrial economy is bleak - ignoring that fact that he had kept pushing his managers mercilessly for profits and cash-flow, which was a short-sighted palliative and would merely heighten their plight.

Yurko : "My mistake was believing things were going to get better way too soon, but that was my guidance." (Hmmm... who exactly was giving him guidance? People who worked with him report : "He'd never listen!")

Yurko summarizes: "I do not expect sympathy. I am not expecting people to give me high marks. I do not want the tone of this to be that I am feeling bashed. I am a big boy. I wanted to do the right thing and am not asking for special consideration." (Hmmmm... Who is offering sympathy? Who is giving him high marks? His pension of $500k/year or $7.5m immediate cash-out was "special consideration" indeed.)

One senior cohort reported: "Allen seemed sad, during a lunch last week". I must admit I couldn't stop laughing.

Invensys : Yurko's last stand

"Comments about the Group following announcements last week have raised concerns. These comments refer to our financial position, particularly our debt levels, and also the future of the Group as an independent company.

"What Invensys is going through is no different or more extreme than most of our competitors, or industrial companies in general. Our debt levels are manageable and we do not expect to break the covenants that govern them. We are actively managing down our working capital and containing capex. In short, we are implementing exactly the right programmes to weather this storm and emerge stronger, without sacrificing any aspect of customer service.

"I believe that Rick Haythornthwaite will therefore have a solid platform from which to build winning strategies to catch the maximum benefit from the upturn when it comes - which inevitably it will. And make no mistake, Rick was brought in to GROW the Group, not sell it. If the Board had wanted to do the latter, they would not have needed a new CEO, they would simply have asked me to do so.

"As for Rick's former company, he did not set out to "sell" it. He substantially improved its performance, reshaped it and then was forced to fight off a prolonged hostile bid, which he did, successfully. Ultimately, however, the offer was increased substantially and became friendly. Rick's Board, in the interests of good corporate governance, had to accept. So in fact, Rick is today widely admired for actually fighting hard to keep Blue Circle independent.

You need to share these insights with your customers and suppliers. You need to get across our key message - "it's business as usual at Invensys"."

Pinto Prognostications:

That Invensys is doing badly, like everyone else is baloney! Invensys was going wrong for some time before the US slowdown started. Invensys and Emerson are the two closest comparators and actually make very similar products. Invensys profits will halve this year; Emerson will be down about 10%. Others too have had downturns, but (other than Honeywell) no one is "in extremis".

Right now, Invensys finances look very stretched. The new CEO appears to have no idea of what he is getting himself into and he is soon going to find that the accounts are in bad shape. Best guess is a big restatement, asset write-done, yet more restructuring and probably a fire sale of assets, maybe even an emergency rights issue.

Yurko was a good Manager. But, over the last couple of years, he fell prey to the notion that he could delegate and didn't get down into the details. Make no mistake, he was fired and is (in American lingo) "the fall guy" for Marshall - who is now steadfastly avoiding blame in the Invensys disaster. A review of all the companies that have Lord Marshall of Knightsbridge on their board is a painful one. The City of London is quickly wiseing-up to that fact.

There is little doubt that Rick Haythornthwaite currently believes all that Yurko’s letter contains. He is in for a rude awakening - soon. When he does, his Blue Circle background might stand Invensys in good stead.

Haythornthwaite fiddles while Invensys burns

Meanwhile, Rick Haythornthwaite who officially becomes CEO on 1st October (his compensation package still not disclosed - if it is and you know, let me know) sent out the first of his to-be-regular memos to all Invensys employees.

The departing Allen Yurko is still poking his finger in the pie with memos to all employees. Perhaps he is protecting the few shares he purchased recently - now down to a fraction of what he paid. One would think his handsome pension and departure-perks should obviate that need.

Haythornthwaite’s first memo says he wants to "come up to speed as rapidly as possible to steer Invensys to higher growth, profitability and performance". He asks for "the commitment and energy of every person in the Group" and invites people to send him questions and comments:

• Fax : (44) 20 7821 3709
• Email : ask.rick@invensys.com

Hey, if you are a concerned Invensys employee, why don't you do just that? Email (or fax) a copy of this segment of eNews - let's see how many copies Haythornthwaite gets.

Will Project Unity go ahead in the way it was originally planned? Haythornthwaite gives a "straight" answer: "Unity is absolutely the right thing to do. However, it is also obvious that our exact requirements for Unity are dependent on the shape and future direction of the Invensys strategy".

The "however" is the out. In my opinion, as soon as Haythornthwaite recognizes that vital elements of Invensys companies will be destroyed by project Unity , and the divestment value will decrease, he will cancel it. Perhaps he is placating the still-around Yurko (who came up with this dumb idea) and will dump the decision when Yurko departs.

In the meantime, key Invensys IT employees have stated:

"I'd be more than happy to be outsourced to IBM as it is a much more stable and secure company than Invensys is at this point. It's very difficult to work at Invensys now - we haven't paid many of our vendors for weeks now and will continue not to pay them until October. Many companies don't want anything to do with us."

Invensys : Recovery or bust

The collapse in the Invensys share price creates a stark dilemma: at a price of 34p, the stock market appears to be assuming that Invensys is not financially viable. Shareholders face the possibility that the new CEO may restate historical profitability.

Three quarters of the Invensys enterprise value is now debt. The company’s debt and committed facilities give it sufficient headroom for maneuver for the time being. But, the worry is that it may breach its covenants for the year to March 2002, which might enable the lenders to impose a restructuring program including forced asset disposals or even force the company into liquidation.

For a copy of the complete Deutsche Bank report, contact Peter Reilly :

Invensys - what's for sale

"Stay focused on your customers, chase down every order, make that sale, save money wherever you can. Remember that seven days can bring a lot of income into a Group as big as ours. There is work to be done and a significant prize to play for."

Industry analysts remained glum and confusion remains over Invensys' GBP 3.2 billion debt position and banking covenants.

Haythornthwaite has said he plans up to GBP750 million of asset disposals. But, since most buyers are aware of Invensys' need to raise money quickly, they'll simply offer fire-sale prices. So, it's no small task.

Someone at Alchemy (the bottom-fishing UK vulture-capitalist which bought ICS) reported that the breakup process is already well underway and that the divestment of several units is already proceeding to the due diligence stage. The process they are using is to basically put everything on the block and find the businesses/sectors that offer the highest gain potential. Once a business has been set up for divestment, other units that are similar will also be divested. Those divested will be publicly declared "non-strategic" and the residual balance of undivested elements will be spun under the cover of "we are retrenching to our core competencies". Of course, the core competencies in this process are only those they cannot sell on a net-gain basis.

Meantime, within Foxboro, APV and others, speculation is mounting over which units will be sold.

One insider reported :

"We have heard that Foxboro is for sale and there are several interested parties. But, Foxboro is being bundled with Wonderware and (are you ready for this?) BAAN - that wonderful company that Yurko wasn't sorry he bought."

Invensys proceeds towards dismemberment

Bruce Henderson Departs (last of the good-guys)

"Bruce Henderson, Division Chief Executive of Invensys Software Systems, is leaving the Group. Effective immediately, the division will report directly to me."

And so, dismemberment proceeds. An insider close to the top sent this:

"Rick will sell whatever he can get a decent price for. I can't see that either the existing divisional structure or any previous ideas about what is or is not core business will be relevant; "cash is king" in this situation.

Project Unity proceeds

The fall of Invensys - tracking the story

According to the UK Independent (Sunday, 21 Oct. 2001), Invensys now has a potential value of zero, implying that it could go into receivership. "We have assumed the company fails to reduce debt and falls into the hands of its bankers."

Invensys : Leo Quinn is new ISS Chief - but is GE buying Foxboro?

Leo Quinn (44) left Tridium, where he was the "President of Europe, the Middle East and Africa". This title meant hardly anything, except an honorific, at Tridium, a small (about 100 people), privately-held company based in Richmond, VA. (USA).

Interestingly, Tridium was started by technology visionary Jerry Frank, formerly from Robertshaw Building Controls & Energy Management systems which became part of Siebe (Invensys). Jerry Frank quit in disgust when he was rebuffed by George Sarney, the dour, uncharismatic chief of Siebe Industrial Controls (long since departed). Small world...

Before Tridium, Leo Quinn spent 17 years at Honeywell, most recently in Home & Building Controls. No one who is anyone at Honeywell seems to know much about his track record - good or bad. (If YOU know something, let me know). It seems to me that Haythornthwaite dumped the job on the first person that agreed to take it.

Leo Quinn quickly sent off an email to everyone at ISS (the words eerily similar to the one composed by Haythornthwaite just a couple of weeks earlier): "Ultimately, our ability to succeed rests on your very capable shoulders. Meeting as many of you as possible, getting your input and discussing our objectives, is one of my immediate goals. I also welcome any comments or questions you may wish to send me via email and promise to respond to them directly."

Hey, Leo Quinn may indeed be a good guy - give him a chance! Tell him what you think - send him an email.

• Leo Quinn Email : leo.feedback@invensys.com

"Invensys has proven much better at acquiring assets than consolidating those assets into something more valuable than the sum of the parts. There have been some recent moves to address this, but it will probably be a year or more before we can actually measure the results. I question whether Leo Quinn and Invensys Software Systems will get that year."

"We just heard indirectly (through a GE owned company) that we now belong to GE. We are not exactly thrilled - GE is said to out source everything and they started checking serial numbers on all the machines today."

"Let's stay tuned for Haythronthwaite's comments with the 15 November interim financial report. Those comments could speak volumes."

Invensys still stewing

Haythornthwaite warned that it is entirely feasible that Invensys will be a very different looking group and warned that a break-up cannot be ruled out. He confirmed that a variety of businesses would be sold off, but the new shape of the company would not be revealed until February. He announced that another $0.5m might be spent in another shake-up; even as he spoke, Foxboro and others reported more RIFs and layoffs.

One distraught Foxboro employee reported:

"On bloody Monday, Nov. 12th, 150 people were axed in the USA, Business Solutions was slaughtered and Performance Solutions was decimated. 125 were axed at EMEA, with additional reductions in the Pacific Rim. VP of Technology Larry Gozzard, who was brought in about 2 years ago, was let go on Friday. 500 more Invensys employee layoffs are planned."

Another long-term insider gave this news:

"After being split a couple of years ago, Foxboro's systems division and the M&I (Measurement and Instrumentation) divisions are being merged (again) by March 2002. Out of this, one Quality Manager, one Test Engineering Supervisor, etc. will survive the cuts. All for the good of the bottom-line."

A source close to strategic high-command at Invensys whispered:

"Invensys will completely ditch the Process Solutions side of the business, and will concentrate on the hardware and the servicing of their hardware alone. Talk about being myopic, it really signifies the beginning of the end. Most companies acknowledge the fact that the I&C market in North America is shrinking, and growth lies in service. Invensys will swim upstream to (maybe) spawn, but certainly die. I guess that a process solutions market value of $5 billion dollars is not worth it to them. So, is this what Leo Quinn the new President of ISS is doing?"

When rumors persisted that GE is buying Foxboro, a knowledgeable major competitor commented:

"GE is smart enough to NOT fall for the fluff - it would be a complete surprise. We have been in talks with Invensys about buying pieces and I think that they would surely tell us to try to get some bidding going, but who knows."

UK worst bosses 2000 - Invensys 2 out of 5

• Allen Yurko, Invensys CEO till 6 weeks ago
  During Yurko's tenure, shares in Invensys fell from an all-time high of 400p to less than 30p recently, wiping out more than $15b of shareholder value. During the recent announcement of results Haythornthwaite, the new CEO, gave a damning indictment of the way Yurko had run the troubled company. Yurko had spent so much time on "excessive restructuring" and shedding jobs that the company had failed to look after its customers. In less than three years Yurko had shed 23,000 jobs and issued a series of profit warnings, till he eventually "resigned" (with a $ 7.5m pension in his pocket). He was paid about $1.5m a year, while the new CEO gets "only" about $1m.

  In the midst of this lambasting, Yurko "agreed to remain" till January 2002; one wonders what he is doing, and is he actually being paid a salary in the interim. Still a young man (50), where will he turn up next? Perhaps there is still someone out there who hasn't read the headlines and can still believe the Yurko yuck.

• Lord Marshall of Knightsbridge (to give him his full title)
  The pompous and xenophobic chairman of Invensys (and also British Aerospace) is responsible for talking Yurko into merging Siebe with pig-in-a-poke BTR. He sneakily sidestepped the blame as Yurko was ditched. Now Invensys is close to dismemberment, and BA (the airline) faces perhaps its biggest challenge yet. Under pressure to resign, Marshall gave up the deputy chairmanship of BT; one wonder when he will actually be booted out of his remaining charades.