M&A

PeopleSoft to Buy J.D. Edwards

Deal is valued at $1.7 billion. But will it fly with regulators?
John GoffJune 2, 2003

In a deal that’s bound to shake up the ERP software sector, management at PeopleSoft announced this morning that the company intends to acquire rival J.D. Edwards. According to a press release put out by the Pleasanton, Calif.-based PeopleSoft and Denver-based J.D. Edwards, the deal is valued at $1.7 billion.

If approved by shareholders — not to mention regulators — the acquisition would make PeopleSoft the second largest maker of enterprise applications software. Combined, the two companies have about $2.8 billion in annual revenues. J.D. Edwards, the smaller of the two businesses, reported a net GAAP loss of about $400,000 in the second quarter.

The transaction is expected to be accretive to PeopleSoft’s fiscal year 2004 earnings on an adjusted basis excluding amortization associated with acquired intangibles, the write-down of deferred revenue and other purchase accounting adjustments.

A combining of PeopleSoft and J.D. Edwards will leave only a few major players in the enterprise software market, including market leader SAP, Oracle, and Microsoft Great Plains.

Under the agreement, J.D. Edwards shareholders will receive .860 PeopleSoft common shares for each outstanding share of J.D. Edwards stock. Based on Friday’s market close of $14.10, the purchase price represents about a 19 percent premium for J.D. Edwards shareholders.

At a Webcast announcing the acquisition, PeopleSoft CEO Craig Conway said he expects the deal to close either late in the third quarter of the year or early in Q4.

The deal of two of the major players in the enterprise software space makes some sense. Executives at both companies say the purchase will save the company about $80 million in operating expenses.

Observers point out that the two companies also offer a nice compliment of products. Traditionally, PeopleSoft has tended to focus on the services sector, while J.D. Edwards has generally designed products for more asset-intensive industries such as manufacturing. In addition, PeopleSoft’s client roster includes many large cap companies, while J.D. Edwards has zeroed in on small to mid-sized businesses. “This merger could not be more compelling,” Conway noted.

Only time will tell if government regulators feel the same way.