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Technology Stocks : Vantive Corporation

VNTV 77.60

+2.6%

Jan 12 4:00 PM EST

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To: Will Cunningham who wrote (1424)	12/19/1997 3:51:00 PM
From: Scott H. Roberts	Read Replies (1) of 3033

Here are some thoughts on a Vantive/Peoplesoft merger from an ex-investment banker. I did a back of the envelope analysis of what Peoplesoft might be able to pay for Vantive in a pooling of interest transaction (tax-free stock for stock exchange). If my sources are correct, Peoplesoft is trading at a 81.41x PE for 12/97 and a 56.91x PE for 12/98. Vantive is trading at a 50x PE for 12/97 and 33x PE for 12/98. Crude M&A 101 accounting dictates that the buyer can pay up to their future PE times the seller's future earnings without the deal being dilutive to earnings. Using PSFT's 56.91x (12/98 PE)times VNTV's $0.79 earnings for the same time you get a $44.95 stock price. This $44.95 represents the zero dilution point (the point at which the transaction is neither accretive nor dilutive to earnings). Other things to consider. If you assume a deal at $40 a share merger ($1 Billion deal), VNTV would own approximately 12% of the combined company. This would be consistent with a revenue contribution analysis which shows that (as of now) VNTV would contribute roughly 12% of revenues to the combined Company. I didn't bother to do the earnings contribution in light of the future PE analysis. The bottom line is that PSFT could comfortably pay $40 a share and leave room for upside (i.e. synergy). Any thoughts from the real accountants out there.

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