The enterprise applications market has received a major makeover with PeopleSoft's acquisition of rival J.D. Edwards & Co.
In a surprise move, California-based PeopleSoft announced on Monday that it had signed about a $US1.7 billion deal to buy out Denver-based J.D. Edwards, creating what it estimated would be the second-largest business applications company after SAP.
Executives at both companies affirmed their commitment to the companies' various product lines.
The newly-joined company will have considerable clout in the marketplace, with $US2.8 billion in annual revenue, 13,000 employees and more than 11,000 customers in 150 countries.
“We have a customer base that in many ways is complementary,” executive vice-president and chief marketing officer at PeopleSoft, Nanci Caldwell, said.
PeopleSoft is especially strong in financial services, health care and telecommunications, and J.D. Edwards has a presence in asset-intensive industries and manufacturing, such as pulp and paper.
“We rarely see them [in competition]. We believe this combination is really strong,” she said.
PeopleSoft planned to take its acquired asset and real estate management software and manufacturing software and sell it up to a higher level of customer, Caldwell said.
In turn, it planned to sell its own human resources, procurement and supplier relationship applications to the more mid-range manufacturing and distribution firms that made up J.D. Edwards’ installed base.
"This only represents an upside to our customers," J.D. Edwards chairman, president and CEO, Bob Dutkowsky, said. He predicted that PeopleSoft's human resources and e-procurement applications would fill gaps in his company's portfolio.
Dutkowsky said the buyout had nothing to do with J.D. Edwards’ reported financial losses for the second quarter, announced last week, and said discussions actually began late last year.
He predicted that the combined company would get a boost in its infrastructure and better leverage, particularly abroad, where it faces a heavily embedded SAP.
Caldwell said: “This gives us much more scale and presence in those markets.”
As for management changes following from the purchase, a spokeswoman for J.D. Edwards said there wouldn't be any.The company would function as a wholly-owned subsidiary.
Analysts offered mixed opinions about the deal.
“This is a very bold move by PeopleSoft, but is it a smart one?” an analyst at ARC Advisory Group, John Moore, said.
He noted that the company now faced a very different set of technology platforms and customers, as well as two different cultures.
Tackling those issues “could prove quite formidable and be a distraction for both companies at a time when they are barely making their numbers.”
On the other hand, “the combination should give PeopleSoft a particular boost in Europe, where it has had a problem convincing Europeans it was anything but a human resource company,” AMR Research analyst, Jim Shepherd, said.
This would give PeopleSoft a chance to break into the manufacturing market, which it had found tough to crack, he said.
“While merging companies always say they have market synergy, this one is for real,” Shepherd said.
SAP said it did not expect the merger to affect it.
"PeopleSoft and J.D. Edwards were already competitors of SAP," it said. "Their combination does not significantly change the competitive field and therefore has no major impact on SAP. Acquisitions always bring with them difficult challenges of integration and customer satisfaction.
Otherwise, we have to await further developments to see if the PeopleSoft-J.D. Edwards combination will have any other effects on the market."
The transaction is expected to close by the third or fourth quarter of this year.