Posted on: Tuesday, June 3, 2003
TODAY'S TECHNOLOGY
PeopleSoft buys rival software maker J.D. Edwards
By Michael Liedtke
Associated Press
SAN FRANCISCO — Business software maker PeopleSoft Inc. said yesterday it is buying rival J.D. Edwards & Co. in a $1.5 billion stock swap that unites two companies vying to snap out of a recent sales lull.
The deal, expected to close in the third or fourth quarter, will create the world's second-largest maker of software that helps businesses manage their personnel, supplies and other behind-the-scenes operations.
The combined company, which will retain the PeopleSoft name, will have about $2.8 billion in annual revenue, 13,000 employees and 11,000 customers in 150 countries.
Although some jobs will be eliminated, no mass layoffs are planned, said Kevin Parker, PeopleSoft's chief financial officer.
Only Germany-based SAP will be larger in the business software niche known in corporate America as "enterprise applications." PeopleSoft for years has been locked in a seesawing battle with Oracle for the No. 2 position in applications.
With most of its sales coming from database software, Oracle's overall business will remain far larger than PeopleSoft's, even with J.D. Edwards.
As frequently happens to a company making a major acquisition, PeopleSoft's shares dropped during yesterday's trading, decreasing $1.42 to close at $14.97 on the Nasdaq Stock Market. The decline lowered the value of the deal from an initially announced $1.7 billion to $1.5 billion. J.D. Edwards' stock gained 78 cents to $12.59 on the Nasdaq Stock Market.
With their union, Pleasanton-based PeopleSoft and Denver-based J.D. Edwards are betting they have complementary strengths that will help them weather a high-tech spending slump now in its third year. The malaise has hurt both companies, with PeopleSoft's sales of new software licenses plunging by 18 percent last year and J.D. Edwards dropping by 16 percent. Both companies still turned a profit, despite the erosion.
After PeopleSoft began this year with another sharp sales dropoff, the company decided to eliminate 200 jobs and close a Silicon Valley office.
Although PeopleSoft and J.D. Edwards make similar products, they have traditionally focused on different markets.
PeopleSoft — the larger of the two companies with $1.9 billion in revenue — sells mostly to big companies specializing in services, colleges and government agencies.
J.D. Edwards, with annual revenue of $886 million, primarily peddles its products to medium-sized companies, with an emphasis on manufacturers.
After the two companies recognized the possible advantages of a merger, the management teams began informal talks about nine months ago, J.D. Edwards CEO Bob Dutkowsky said yesterday.
Even if there's some business logic for the merger, short-term problems are likely as management tries to meld different sales cultures and complex software products, said analyst Tad Piper of U.S. Bancorp Piper Jaffray.
PeopleSoft predicted the deal will boost the company's earnings beginning next year. To help the cause, PeopleSoft intends to trim about $80 million in annual expenses after the deal is complete.
Running the combined company will be left to PeopleSoft CEO Craig Conway, who recently came under fire for taking $14.6 million in restricted stock, as well as a large package of stock options, last year while the company's sales suffered.
