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Technology Stocks : PSFT - Fiscal 1998 - Discussion for the next year -- Ignore unavailable to you. Want to Upgrade?

To: Edwarda who wrote (3556)	11/17/1998 9:42:00 AM
From: Tom Smith	Read Replies (1) \| Respond to of 4509

Folks, The reason for this move is to allow R&D expenditures to be handled off of PSFT's books. Here's the deal. PSFT wants to spend big bucks on R&D for e-commerce, Web technology, etc, but they DON'T want to hurt PSFT's profit margins or affect the PE. So they spin off a separate company which will likely operate at break-even levels or at a loss. This allows PSFT to hit their profit growth numbers for the next few years AND get the benefit of the R&D work. The new company (and stock) absorbs the cost and PSFT gets the benefits. The deal weakens PSFT's balance sheet ($300M less cash) but strengthens their income statement (less R&D expense.) This becomes apparent from the following statement in the press release: Momentum will allow PeopleSoft to more aggressively pursue strategic R&D opportunities while providing our shareholders additional alternatives for investment in the future of PeopleSoft. The words "more aggressively" can be translated to mean "at a loss." After a few years, if things go according to plan, the two companies will probably merge back together. Tom