PeopleSoft to Buy Rival J.D. Edwards
story.news.yahoo.com
By Caroline Humer
NEW YORK (Reuters) - Business software maker PeopleSoft Inc. (Nasdaq:PSFT - news) said on Monday it would buy rival J.D. Edwards & Co. (Nasdaq:JDEC - news) for $1.68 billion in stock, expanding into manufacturing software amid weak demand for technology that has held back revenue growth.
PeopleSoft is best known for software that stitches company human resources operations together with other business departments. J.D. Edwards focuses on manufacturing-shopfloor integration software.
Shares of J.D. Edwards rose as much as 13 percent, while PeopleSoft's shares fell 5 percent.
The combination, which will compete with Germany's SAP AG (SAPG.DE) and Oracle Corp. (Nasdaq:ORCL - news), comes against the backdrop of weaker corporate spending on technology, which has chilled the market for most business software makers.
Shareholders will get 0.86 PeopleSoft share, or $14.10 for each J.D. Edwards share, a 19 percent premium over J.D. Edwards' closing price of $11.81 in Friday trading on Nasdaq.
"PeopleSoft paid a pretty reasonable amount for J.D. Edwards," said Jamie Friedman, an analyst for research firm Fulcrum Global Partners LLC. Buying J.D. Edwards also will allow PeopleSoft to sell more kinds of software to corporate clients.
"The limitation is that (J.D. Edwards) runs very low operating margins, and the combined margin is likely to decline. ... However, the way the math works is that if you get enough revenue out of it, you can still make more in earnings," he added.
The terms of the deal, which is expected to close late in the third or early in the fourth quarter, call for J.D. Edwards to become a wholly owned subsidiary of PeopleSoft. J.D. Edwards shareholders will own 25 percent of the combined company.
PeopleSoft, of Pleasanton, California, said the deal would increase its 2004 earnings, excluding amortization and other items. The deal has been unanimously approved by both companies' board of directors.
During a conference call, PeopleSoft executives said they do not anticipate that the deal will be dilutive to 2003 earnings and said it is not updating guidance for the year.
On April 22, PeopleSoft said it expected to book 2003 revenue of $1.9 billion and earnings before items of 52 cents to 54 cents per share.
The deal comes as both companies have struggled to meet financial expectations. PeopleSoft, which has seen a steady year-on-year decline in revenues over the past year, has been cutting costs and in April closed its Santa Clara, California, office and cut 200 jobs to trim $1 million in costs. Denver-based J.D. Edwards in early May warned of lower revenue and earnings for the second quarter.
J.D. Edwards shares rose $1.22, or 10.3 percent, to $13.02 in morning trade on Nasdaq. PeopleSoft dropped 94 cents, or 5.7 percent, to $15.45.
PeopleSoft was advised by Citigroup (NYSE:C - news), while J.D. Edwards was advised by Morgan Stanley (NYSE:MWD - news). |
