Peoplesoft Gives Updated Guidance; Plans to Cut 900 Jobs
Thursday September 4, 8:58 pm ET
By Ellen Sheng and Riva Richmond
NEW YORK -- Business software maker PeopleSoft Inc. (NasdaqNM:PSFT - News) on Thursday provided updated guidance that included the company's recent $1.8 billion acquisition of J.D. Edwards & Co. and detailed an ambitious product integration plan.
The company also said it would lay off roughly 900 employees.
Speaking at the company's analyst day in New York, Chief Financial Officer Kevin Parker said the combined company expects to generate revenue of $2.15 billion and pro forma earnings of 52 cents to 55 cents a share for 2003.
The company estimates revenue of $2.8 billion to $2.9 billion in 2004, with pro forma earnings ranging between 90 cents to 95 cents a share. Pro forma earnings exclude amortization and some deferred costs.
For the third quarter, the company expects to generate revenue of $575 million to $595 million with pro forma earnings of 10 cents to 11 cents a share.
Mr. Parker also said the merger will create savings of $167 million to $207 million. As part of those savings, the company will cut its work force of 13,000 by about 7%, he said. Mr. Parker emphasized that the cuts will be distributed throughout the combined company.
Earlier, the chief financial officer told the press that the company currently has a head count of about 12,500.
The Pleasanton, Calif., company, which is still fending off a hostile bid from rival Oracle Corp. , closed its $1.8 billion acquisition of J.D. Edwards & Co. last week.
Most of the job cuts will come from marketing, middle management and general and accounting, Mr. Parker, PeopleSoft's CFO, told attendees at the analyst meeting. Employees in research and development, sales, and consulting, on the other hand, will largely escape layoffs, he said. As the two companies have focused on different markets, there is virtually no overlap in those areas, Mr. Parker explained.
By consolidating office space and reducing redundant IT staff, the company can save about $33 million to $40 million, Mr. Parker said. Marketing costs can be whittled down by $25 million to $27 million as the combined company will now be promoting just one name - PeopleSoft - and consolidation of sales operations will yield another $30 million to $35 million in savings, Mr. Parker continued. PepleSoft plans to slash $30 million to $40 million from consulting, $10 million to $15 million in general and accounting and $9 million to $10 million in purchasing and contracting.
The cost savings Mr. Parker outlined are slightly greater than the $150 million to $200 million previously forecasted. In June, when PeopleSoft first announced its intention to buy J.D. Edwards, it forecast savings of just $80 million. But to fend off Oracle's hostile overtures, PeopleSoft restructured its merger to accelerate the deal and increased projections for cost savings.
PeopleSoft officials had also downplayed the number of job cuts that would be wrought by the merger. Craig Conway, PeopleSoft's chief executive, had warned investors of massive job cuts if Oracle succeeded in getting its way with a hostile takeover. Now, it seems, the company will end up implementing more layoffs than officials had admitted.
Mr. Parker also announced a plan to buy back $350 million in PeopleSoft stock. The buyback should be completed by Dec. 31, and will impact the bottom line by three cents a share in 2004.
"I think they gave us everything we wanted," said Banc of America Securities (News - Websites) analyst Bob Austrian, citing the upbeat guidance and integration plan that he described as "thoughtful" and "credible."
The guidance was higher than expected, Mr. Austrian said, but still " achievable." Other analysts speaking on the sidelines of the meeting were not so sure, calling the 2004 guidance "aggressive" and fretting that it left "little room for error."
PeopleSoft's plan to integrate products met with approval and allayed some concerns about sales synergies. Investors had been lukewarm on PeopleSoft's initial plans to keep the two companies' product lines separate.
"While that's safe, safe doesn't always win," Mr. Austrian said. What PeopleSoft presented Thursday was a happy medium between doing nothing and totally rewriting all their products, Mr. Austrian continued.
Ram Gupta, executive vice president of products and technology, outlined a strategy to rebrand the two companies' products under three product lines: PeopleSoft Enterprise, EnterpriseOne and World. He also said the company would introduce more products and would improve its software by sharing expertise. He promised the products integration would be completed in the next 30 to 180 days.
"This has been a company with an appetite to grow," said Conway. With J.D. Edwards we found a direct way to do this," he continued, citing "tremendous" cross-selling opportunities.
PeopleSoft shares popped in the after-market, buoyed by the better-than- expected guidance and integration plans. Analysts present at the meeting speculated that the stock would open higher Friday, forcing Oracle to raise its $19.50 a share, or $7.3 billion, offer.
Not surprisingly, PeopleSoft officials downplayed Oracle during the meeting.
"I don't think the Oracle bid is a current bid," said Conway during the question and answer period, "I think people have lost interest in it."
He also said that Oracle's ongoing overtures would not be a "disruptive factor to doing business." PeopleSoft has been offering money-back guarantees to customers as a way to assuage fears about its prolonged takeover fight with Oracle.
Oracle has said it remains committed to purchasing PeopleSoft even as regulators at the Department of Justice continue their review of the company's proposed offer.
Mr. Austrian said he does not own PeopleSoft stock and that his firm has not received investment banking compensation from the company.
At 4 p.m. EDT on the Nasdaq Stock Market (News - Websites), shares of PeopleSoft were down 30 cents, or 1.5% at $19.35.
In after-hours trading, PeopleSoft's shares were at $20.10, according to Island ECN (News - Websites).
-Ellen Sheng; Dow Jones Newswires; 201-938-5863
-Riva Richmond; Dow Jones Newswires; 201-938-5670 |
