PeopleSoft to Acquire J.D. Edwards

PeopleSoft has started June with a bang. The company announced this morning that it has made an agreement to acquire J.D. Edwards in a stock-for-stock deal valued at $1.7 billion. The deal, which, as usual, is subject to regulatory agency approval, would create the world's second-largest enterprise application software company, according to PeopleSoft. The combined company would have annual revenues of approximately $2.8 billion, and employ about 13,000 associates. The company also says the customer count following the merger would be as high as 11,000 in 150 countries. PeopleSoft says J.D. Edwards will operate as a wholly owned subsidiary, but Nanci Caldwell, chief marketing officer at PeopleSoft, says that financially the companies will be one. Caldwell also notes that the merger will give PeopleSoft a stronger mid-market presence in all areas, while J.D. Edwards' customers can benefit from PeopleSoft's enterprise-level software. "We are committed to the customer base of both companies, and from a product perspective are not about forcing people to move from one application to another," she says. "Also, we are very committed to the AS400 base at J.D. Edwards." The main areas where PeopleSoft will gain a presence, according to Caldwell, are manufacturing and other asset intensive industries that J.D. Edwards has targeted. "And PeopleSoft has a great presence in the services verticals, areas where J.D. Edwards has traditionally been absent," Caldwell adds. Analysts are quick to point out the benefits, and possible detriments, of the deal. Sheryl Kingstone, CRM program manager at the Yankee Group, says the deal is beneficial to PeopleSoft for several reasons: "J.D. Edwards has an excellent manufacturing base, which PeopleSoft needs. PeopleSoft has a better CRM play that J.D. Edwards needs. J.D. Edwards has more mid-market customers, and has a great maintenance stream and customers. All this leads up to more cross-sell opportunities for PeopleSoft products, while milking the maintenance base and customer list of J.D. Edwards." Erin Kinikin, vice president and research leader for Giga/Forrester Research, says that PeopleSoft may be trying to "do it all" with the acquisition in terms of product and services, in the mid-market and enterprise levels. "It's great if they can pull it off, but it's likely to cause customers of both companies to lose some of the differentiation that made them go with that vendor in the first place," she says. "PeopleSoft tries to innovate and be first to market for leading enterprise-level service companies. J.D. Edwards tends to lag on functionality, but delivers the high integration and ease-of-operation demanded by mid-market manufacturers. Both companies have very inward cultures that will be challenging to merge." Kingstone adds that from a CRM perspective, PeopleSoft will gain from J.D. Edwards' stronger sales modules, while J.D. Edwards will gain from PeopleSoft's call center solutions. She notes, however, that J.D. Edwards will have to be folded into PeopleSoft and not run as a subsidiary for these benefits to be realized, which Kingstone says she expects to see happen slowly, similar to PeopleSoft's acquisition of Vantive Corp. in December 1999. Kinikin says she thinks it may be difficult for PeopleSoft to market its CRM solutions to J.D. Edward's mid-market base, since they may not be able to afford such enterprise-level systems. Caldwell says that from a CRM perspective, nothing is planned at this time. "Right now, we have great coverage across many vertical industries and market sizes with both products, and have no product changes planned," she says. According to analysts Jim Shepard and Randy Weston at AMR research, a true integration of the two firms may never happen. The two wrote in an AMR release today covering the merger: "The huge and very loyal installed bases of each company and such solid revenue should reassure customers of both [companies] that J.D. Edwards' products will remain independent. You don't mess with that kind of revenue and that kind of customer." And, unlike Kinikin, Shepard and Weston feel the two companies are a natural fit. "They have very similar hands-on, customer-friendly and employee-friendly philosophies, making for an easy transition," they wrote in their report. Another point Kingstone is quick to make is that SAP AG and Oracle Corp., PeopleSoft's main competitors, may use the acquisition to gain marketing leverage, noting that they have built their suite of applications from a single unified code base, and not from scattered acquisitions of disparate applications. PeopleSoft says the transaction should close by the end of the fourth quarter of the calendar year, and will be accretive to earnings by the end of fiscal 2004.
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