PeopleSoft buys J.D. Edwards for US$1.7 billion

Canadian users were surprised by PeopleSoft’s plans Monday to acquire J.D. Edwards for US$1.7 billion but were cautiously optimistic that the merger could improve

the product lines of both companies.

The two firms said the combined entity will employ 13,000 employees serving more than 11,000 customers in 150 countries. J.D. Edwards will become a wholly-owned subsidiary of PeopleSoft under the agreement, and J.D. Edwards stockholders will own approximately 25 percent of the outstanding capital stock of the combined company.

The agreement has been unanimously approved by both boards of directors, said PeopleSoft, adding that the transaction will close in the late third or early fourth quarter. J.D. Edwards will be completely integrated into PeopleSoft over time.

PeopleSoft chief executive Craig Conway said PeopleSoft hoped to pull J.D. Edward’s manufacturing and distribution applications into the enterprise while using J.D. Edward’s mid-market installed base as a channel for its financial and customer relationship management (CRM) tools.

J.D. Edwards chairman Bob Dutkowsky agreed, adding that there is a “”very modest”” overlap between the two companies’ customers. “”When we look at some of the products we’ve invested in, we believe they underperform because we don’t have a distribution model to reach the enterprise,”” he said.

Gord Thompson, president of a Canadian J.D. Edwards User Group, said that while news of the deal took him off-guard, both companies have an opportunity to add to each other’s expertise.

“”I hadn’t seen this one coming,”” he said. “”I’ve never really seen PeopleSoft in the manufacturing/distribution marketplace, so it probably complements their side of the business.””

Canadian PeopleSoft user Dave Mawby with the City of Oshawa admitted that the city had looked at J.D. Edwards products as well as PeopleSoft’s when it was seeking out vendors several years ago.

“”I can see it as a move into the mid-market, for sure, because that’s more where J.D. Edwards is,”” he said. “”I’m just not sure from a product perspective that’s going to pan out. We don’t have a manufacturing (operation), so I can’t really say we would have seen the manufacturing side of either company.””

Kevin Sundquist, manager of finance and administrative systems with Edmonton-based PCL Constructors said his company had been waiting for some functional upgrades from J.D. Edwards before moving ahead with a deployment of its OneWorld suite of products. Those plans are now on hold.

“”We’re relying on the fact that co-existence is there and is going to continue for a while,”” he said. “”I would say for sure this announcement is really getting us to step back, pause, and really find out how this is going to settle out before we jump on and start moving ahead.””

News of the pending takeover came as a disappointment to some senior IT executives attending the CIO Summit in Calgary Monday, while others viewed it as an opportunity for better service to customers in the long term.

But for Greg Stewart, vice-president of business services with Superior Propane in Calgary, it was news he didn’t want to hear. Superior recently completed a decommissioning of PeopleSoft following Superior’s merger with ICG a year ago. Superior had been a J.D. Edwards customer and had chosen it over PeopleSoft.

“”At first blush it’s a little disappointing when you see this kind of convergence when there are already a finite number of options in the market,”” said Stewart. “”It throws into question the long-term direction of PeopleSoft — will they want to leverage the product set? J.D. Edwards has been a really strong player in the mid-range solution. In the near term, will it mean anything? Probably not, but in the long term certainly PeopleSoft will have to demonstrate the value proposition. How is this a win for me as a customer? Because at the moment it’s not obvious.””

As the industry converges, Stewart said it seems dealing with the vendor community is becoming more complex. Superior just completed negotiating its maintenance agreement with J.D. Edwards, a process he says was one that “”we felt we didn’t really have control over.””

Kevin Brown, CIO for Epcor Utilities Inc., said he saw the merger as positive, suggesting that by bringing the two companies and their products together, it will mean a more robust offering for the customer. He did say, however, it will further challenge new entrants to the market.

IDC Canada analyst Warren Shiau applauded the acquisition, adding that J.D. Edwards would benefit from PeopleSoft’s muscle after a late start in areas like CRM.

“”Its growth prospects on its own were somewhat limited,”” he said. “”Sure, they’re trying to move up-market, but what are you up against? You’re up against all the installed bases for SAP, Oracle, PeopleSoft. It’s hard being a mid-market vendor and moving up into the enterprise.””

Though neither firm has attempted an integration of this size, both companies have some experience in with the acquisition and integration process. PeopleSoft, for example, acquired CRM niche player Vantive in 1999, while J.D. Edwards purchased its own CRM firm, Youcentric, almost two years ago. PeopleSoft is attempting its latest takeover at a time when the company is suffering financial difficulties. Its stock value was cut in half during 2002. On Monday the stock was trading at US$14.97, down from the day’s opening trade of US$15.78.

In the past year, the two companies have also announced plans to increase application support for the Linux operating system, and both firms have close ties to IBM product lines.

“”Acquisitions that have run into trouble have been troubled from the beginning,”” said Conway. “”They were acquisitions that were done to solve some fundamental flaw or improve their position in the market. J.D. Edwards and PeopleSoft don’t fall into that category.””

The directors and executive officers owning shares of both companies have agreed to vote their shares in favour of the transaction, PeopleSoft said.

J.D. Edwards will hold its annual user conference next week in Denver.

— with files from Jennifer Brown

Comment: info@itbusiness.ca

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