Case Description: Rise and Fall of Silicon Valley in Flanders – Lernout & Hauspie Speech Products

Abstract

The early years of Lernout & Hauspie (L&H) were turbulent. The company crawled from one financial crisis to the other. At the beginning they repeatedly had to go to friends, acquaintances, distant acquaintances, local businessmen (butchers and bakers) and farmers. A prime minister, a provincial governor and various mayors, even the heir to the throne all spoke in public and often showed their unconditional support with financial resources. In 1995, L&H became listed on the US Nasdaq technology exchange. Starting in 1996, the company started along the takeover path. Among the companies it acquired were its two most important US rivals, Dictaphone Corporation (7 March 2000) and Dragon Systems (27 March 2000). The company displayed spectacular growth and drew new investors. In 1997 Microsoft invested $45 million to acquire nearly 8% of the shares. Later it became clear that the board at L&H grossly underestimated one factor: the last two takeovers meant that nearly half their turnover was generated in the USA. L&H’s management was clearly no match for the US press and analysts that smelled blood. The financial operations were far from transparent and most experts became convinced that L&H was a clear case of fraud. Bankruptcy became unavoidable.