The deal is valued at $1.7 billion and would create the world's second-largest enterprise applications vendor.

Beth Bacheldor, Contributor

March 4, 2003

4 Min Read

CRAIG CONWAY PHOTO



PeopleSoft President and CEO Craig Conway

The announcement that PeopleSoft Inc. plans to buy J.D. Edwards & Co. has some concerned that the $1.7 billion buyout will create integration issues and product overlap. But execs at the two companies say they're committed to all the products going forward.

There's no plan at this point to move customers from one architecture to another, says PeopleSoft chief marketing officer Nanci Caldwell. "We are going to remain very committed and not force anyone to upgrade," she says.

Both Caldwell and J.D. Edwards chairman, CEO, and president Bob Dutkowsky, say the deal strengthens each company. "PeopleSoft is very much a leader in large enterprise applications, and J.D. Edwards is a leader in midsize apps," Caldwell says. "And PeopleSoft is a leader in the services industries, and J.D. Edwards is recognized in the manufacturing and distribution areas, and also in real estate, construction, and asset-intensive markets."

According to Dutkowsky, J.D. Edwards' customers will gain access to sourcing and E-procurement software. "Our customers have been asking for that to enhance their supply chains," he says. "We were going to have to build or buy those capabilities. Now our customers won't have to wait." And PeopleSoft customers will get access to J.D. Edwards' enterprise asset-management and advanced-planning software, Dutkowsky says.

Some observers say even the cultures of the two companies mesh well. In a research note released Monday, AMR Research analysts said the two companies fit together culturally probably better than any two vendors in the business. "They have very similar hands-on, customer-friendly and employee-friendly philosophies, making for an easy transition," the research note stated.

Dutkowsky concurs. "Both of us are mature software companies and we do have entrenched cultures. But those cultures are built around caring for the customer and caring for the employee," Dutkowsky says. "It's in our fabric. I like to say it's in our DNA. And it's in PeopleSoft's DNA, too."

Still, there are questions. "There are a whole slew of issues they will have to work out," says Mike Dominy, a senior analyst at the Yankee Group. "It's an awful big bite to chew."

For example, J.D. Edwards has a large installed base--more than 4,000 customers--on the AS/400 platform, an operating system PeopleSoft currently doesn't support. "Both Caldwell and Dutkowsky say the AS/400 will continue to be supported for J.D. Edwards software. And there is overlap of some applications, though the markets tend to be different. "Industries where we don't have a strong foothold, they do. And in industries where they don't, we do. As a matter of fact, we rarely ever compete," Caldwell says.

The deal opens new doors overseas. According to the AMR Research note, "The combination should give PeopleSoft a particular boost in Europe, where it has had a problem convincing Europeans it was anything but an HR company."

The deal, if approved, will create the world's second-largest enterprise applications vendor behind SAP AG. Under the terms of the agreement, stockholders will receive 0.860 PeopleSoft common shares for each outstanding common share of J.D. Edwards stock.

J.D. Edwards will become a wholly owned subsidiary of PeopleSoft, and J.D. Edwards stockholders will own approximately 25% of the outstanding capital stock of the combined company.

PeopleSoft president and CEO Craig Conway will serve as president once the acquisition is complete. Dutkowsky says he is "committed to staying and helping with the transition, and then I'll see what kinds of opportunities exist."

The deal is expected to be final late in the third quarter or early in the fourth quarter. The combined companies will have approximately $2.8 billion in annual revenue, 13,000 employees, and more than 11,000 customers in 150 countries.

The transaction is expected to be tax-free to stockholders of both companies. The deal is subject to regulatory review, approval by the companies' stockholders, and certain other customary conditions. Citigroup Global Markets acted as financial adviser to PeopleSoft, and Morgan Stanley acted as financial adviser to J.D. Edwards.

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