06/03 - PeopleSoft to buy J.D. Edwards for $1.7 billion - East Valley Tribune: Business

06/03 - PeopleSoft to buy J.D. Edwards for $1.7 billion

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Posted: Tuesday, June 3, 2003 9:47 am | Updated: 2:23 pm, Thu Oct 6, 2011.

SAN FRANCISCO - Business software maker PeopleSoft Inc. said Monday 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 Monday'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 in an interview Monday.

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.

Despite their business rivalry, PeopleSoft and J.D. Edwards are highly compatible, Parker and Dutkowsky said. The companies' founders, PeopleSoft's David Duffield and J.D. Edwards' Edward McVaney, have been friendly for years and share similar business philosophies forged during the 1960s and 1970s, Dutkowsky said.

Neither Duffield nor McVaney is involved in the day-to-day management of the two companies, although both remain major shareholders. Duffield, who founded PeopleSoft in 1987, owns a 9.2 percent stake in his company and McVaney, who co-founded J.D. Edwards in 1977, owns 4.4 percent of his company's stock.

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.

PeopleSoft estimated the 4.1 million stock options awarded Conway will be worth between $67 million and $171 million, depending on how the company's shares perform through November 2012.

With Conway at the helm, PeopleSoft managed to avoid the early stages of the high-tech downturn, lifting its shares above $50 in early 2001 as customers snapped up a suite of business software designed to run on the Internet.

But the company hasn't been able to develop another product line compelling enough to keep producing sales as the high-tech slump persisted.

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