Copyright 2003, Traffic World, Inc.
Enterprise and supply-chain planning vendor PeopleSoft is buying rival J.D. Edwards & Co. for approximately $1.7 billion in stock. The combined company will be the world''s second-largest enterprise applications software company behind SAP AG, with approximately $2.8 billion in annual revenue, 13,000 employees and more than 11,000 customers.
Under the deal, expected to close in the late third or early fourth calendar quarter, J.D. Edwards will become a wholly owned subsidiary of PeopleSoft. J.D. Edwards stockholders will own approximately 25 percent of the outstanding capital stock of the combined company, with each outstanding J.D. Edwards common share worth 0.86 PeopleSoft common shares. The transaction is expected to be accretive to PeopleSoft''s fiscal 2004 earnings on an adjusted basis excluding amortization associated with acquired intangibles, the write-down of deferred revenue and other purchase accounting adjustments.
PeopleSoft''s Nanci Caldwell, executive vice president and chief marketing officer for the company, said there were three main reasons why PeopleSoft decided to acquire J.D. Edwards. First, the acquisition will increase PeopleSoft''s product offering in manufacturing and supply chain, she said. Second, because it focuses on midmarket companies, J.D. Edwards will give PeopleSoft a stronger entr?e into the midmarket. And third, both companies operate in different vertical markets, with PeopleSoft traditionally being in services and J.D. Edwards in asset-intensive and manufacturing markets, said Caldwell.
There have not been any decisions made on how the companies will be combined, said Caldwell. "We''ve not even said the product lines will be combined," she said. "We will work through a product road map. Our commitment is to support J.D. Edwards'' and PeopleSoft''s customers." Customers of both companies will be able to immediately access solutions from the other, she said.
Although no decisions on how the companies will be combined will be made until the deal closes, there will be one PeopleSoft brand and J.D. Edwards will be a subsidiary of PeopleSoft, said Caldwell.
PeopleSoft will be looking to cut $80 million from its annual expenses of $2 billion, in order for the deal to be accretive in 2004, but those cuts will not come from combining product lines or from layoffs, said Caldwell. Some areas that might be affected include duplicate offices and the two companies'' sales and marketing structure, she said.
The senior management of J.D. Edwards will stay on to help with the transition, said Caldwell.
Les Wyatt, senior vice president and chief marketing officer of J.D. Edwards, said the combined companies will give J.D. Edwards "a resource base that alone we just don''t have." For example, PeopleSoft, as a larger company, will be able to more aggressively market J.D. Edwards in the midmarket, he said.
Additionally the PeopleSoft brand and name recognition will be a great asset to marketing J.D. Edwards'' products, said Wyatt. "We haven''t had the same visibility as PeopleSoft. It''s a real strength we can leverage," he said.
Over the long term, the combined company plans to create the broadest suite of applications in the market and product lines most likely will be integrated, said Wyatt. Decisions on how the company will be structured and its future product lines will be considered after J.D. Edwards'' global user conference, which starts next weekend.
As for J.D. Edwards'' senior-level staff, "one of the things that was a requirement of PeopleSoft in our contract was that all of J.D. Edwards'' executives sign up to stay on. The reason they wanted that is they see the midmarket as not just a product thing. They see it as a business model, a business design. And the thing that makes a business design work is the people," said Wyatt.
The cultures of the two organizations also are very similar, something that will be an asset to combining the two companies, said Wyatt.
Karen Peterson, vice president at research and advisory firm Gartner, said the acquisition makes sense but it will be a challenge. The combined company will need to work together carefully and assure users that they can work together, she said. "They have to come up with an integration plan" for each company''s signature software line, she said. J.D. Edwards'' AS/400-based software line, World, will not be integrated to PeopleSoft, she said.
Although the acquisition is a good idea at a high level, "the devil is in the details," said Peterson. "Whether it is successful depends on how they execute it. They could leave it as is. That would be terrible for all customers. If they can bring synergies together, it could be beneficial. But it is not going to be easy."
PeopleSoft and J.D. Edwards'' customers will need to push the company to determine when additional functionality, particularly for the J.D. Edwards 5 suite, will be delivered, said Peterson. J.D. Edwards had been working on a number of new initiatives but they could get shunted to the side with the integration issues, she said.
In many ways there is not much overlap between the two companies as far as the markets they address, said Peterson. "But to be successful they have to come out with a single solution," she said. The combined company may decide to support one but not the other platform. There isn''t much overlap with products either, she said. "PeopleSoft doesn''t have functionality in a number of areas, especially supply chain. In transportation and warehousing, it has no functionality," she noted.
But PeopleSoft also offers J.D. Edwards'' customers "a much more Internet-enabled architecture. It has done a lot of work on business intelligence/corporate performance," she said.
J.D. Edwards had not necessarily been doing badly, said Peterson. Rather, "SAP and Microsoft are beginning to push all midmarket vendors, SAP from the top and Microsoft from the bottom," she said. "All of the other vendors are going to experience increased competition" because of Microsoft and SAP. It will be up to each best-of-breed vendor to remain ahead. "There is much more significant competition but that doesn''t mean they can''t remain competitive and viable," she said.
John Fontanella, senior analyst at AMR Research, said becoming the second-largest enterprise application vendor is important, not only for worldwide coverage, but because in a depressed economy "people are looking for scale" with their vendors, he said.
In the market, PeopleSoft is seen as being more in services, with larger customers, while J.D. Edwards is seen as a midmarket vendor in the manufacturing and asset-intensive industries, said Fontanella. The combination will strengthen each company''s presence in Europe and Asia, he said.
Overall, AMR sees the combination as good. "The organizations are very similar. They are both hands-on, customer- and employee-friendly. It is not a marriage made in hell," said Fontanella. And neither company was in danger of going out of business, said Fontanella. "They both had a lot of cash in the bank," he said.
The combination initially will not impact customers much, said Fontanella. "You can be sure they will do whatever possible to shield customers from the transition," he said. And "they are not doing this to merge two companies and then weeding out duplicate organizations. That is not where the value is," he said.
One issue will be how long J.D. Edwards'' World will be supported, said Fontanella. "I believe it will be supported for a very long time," as it is a large part of the company''s customer install base, he said. "We don''t see any underhandedness or arm twisting to move from one platform to another. No changes in product support are anticipated," he said.
In an alert sent out by AMR Research, analyst Jim Shepherd said the acquisition will help PeopleSoft break into the manufacturing market. J.D. Edwards had been the fourth-largest enterprise application provider and PeopleSoft had been competing for second place with Oracle Corp. Now Oracle will be in third place, he said.
The size and rank of the combined company is one of the main reasons for the acquisition, said Shepherd. "Both companies were finding it increasingly hard to compete globally and domestically against mammoth SAP in such a depressed technology economy. J.D. Edwards last week posted its first loss in six consecutive quarters and a 20 percent decline in license revenue. Likewise, PeopleSoft has seen its stock tumble more than 50 percent in value and recently warned of much lower revenue for the year than last year. They now will have solid footing against SAP," he said.