PeopleSoft Completes Acquisition Of J.D. Edwards

PeopleSoft Inc.'s acquisition of J.D. Edwards & Co., creating the world's second-largest enterprise applications vendor, is a done deal. Now what will Oracle do?

PeopleSoft said Friday that it purchased 110 million shares, or 88% of J.D. Edwards' outstanding stock, for $14.74 per share for cash and PeopleSoft stock by its Thursday midnight deadline. PeopleSoft also said it expects to acquire the remaining shares by the end of August for $7.05 in cash plus 0.43 shares of PeopleSoft stock for each J.D. Edwards share. That will put the final price tag for the deal at $1.8 billion.

Because PeopleSoft did not acquire 90% of J.D. Edwards' stock, a formal stockholder vote is required to allow PeopleSoft to acquire the outstanding shares. Such a "second-step merger" is just a formality, a PeopleSoft spokesman says, given that PeopleSoft will vote its 88% stake in favor of the acquisition. The spokesman said the vote will not delay steps to integrate the two companies.

The PeopleSoft-J.D. Edwards combination creates a company with annual sales of $2.8 billion, 13,000 employees, and 11,000 customers. "The combination expands not only our customer base, product offerings, and markets, but also our talent," PeopleSoft president and CEO Craig Conway said in a statement.

J.D. Edwards' top executives have promised to remain with PeopleSoft for at least six months to help with the transition. The price isn't cheap: CEO Bob Dutkowsky will receive $2.6 million and CFO Richard Allen will receive $1.8 million for staying on board.

By buying J.D. Edwards, PeopleSoft also creates another possible stumbling block for Oracle by expanding its board from seven directors to eight. That could become pivotal if Oracle chairman Larry Ellison decides to wage a proxy fight next year to elect PeopleSoft directors that will support his takeover bid. PeopleSoft's current board has spurned Ellison twice and refuses to meet with him. The newly elected director is Michael Maples, a member of J.D. Edwards' board of directors. Maples is a former executive at Microsoft and isn't expected to be friendly toward Oracle, one of his former employer's chief rivals.

Four of PeopleSoft's seven directors come up for re-election next year. That would have been just enough to tilt the board in Ellison's favor in a successful proxy fight, but the addition of Maples could ruin that plan.

Oracle shows no signs of quitting the fight. It issued a statement Thursday saying it "remains committed to acquiring PeopleSoft--even with the addition of J.D. Edwards." But the price tag to complete such a deal, based on Oracle's current $19.50-per-share offer, will rise from $6.3 billion to $7.3 billion because PeopleSoft issued 52.6 million new shares to buy J.D. Edwards. Oracle also has yet to convince the Department of Justice that acquiring PeopleSoft won't be anti-competitive, a job that will be tougher now that PeopleSoft owns J.D. Edwards.

The completion of the deal came one day after PeopleSoft reported a profit of $36.5 million, or 11 cents per share, compared to net income of $36 million, or 11 cents a share, a year ago. The results mirrored management estimates released two weeks ago. "The simple truth behind our strong quarter is we are a strong company," Conway said in a conference call with analysts. "I am more convinced than ever that the combination with J.D. Edwards is a powerful combination."