Proposed merger great for shareholders and general user base, but questions remain on future commitment to home building

By Steve Zurier

June 2, 2003 (Hanley-Wood News Service) - PeopleSoft plans to acquire J.D. Edwards later this year in a $1.7 billion deal that will create the software industry's second largest enterprise applications company.

Under the terms of the deal, J.D. Edwards would become a wholly owned subsidiary of PeopleSoft. Combined, the two companies will have about $2.8 billion in revenues, 13,000 employees and more than 11,000 customers in 150 countries.

The deal comes at a time when corporate spending on information technology has been weak for several months. Earnings estimates for both companies have been scaled back, but analysts largely saw the deal as a good fit for both companies.

PeopleSoft's strength is in its human resources applications, while J.D. Edwards has a long track record servicing the manufacturing and home building markets. The thinking is that the combined companies will have the critical mass and stability needed to compete against SAP and Oracle.

Edwards made a strong push to service the home builder market this year by rolling out Homebuilder Management, the final piece to its enterprise, resource and planning system for builders. Several large builders, including Lennar Corp., D.R. Horton, and MBK Homes, run large portions of their business over J.D. Edwards.

But at least one prominent analyst questioned whether the combined companies will support the home builders over the long haul.

"Edwards made a strong presence at the IBS show this year with Homebuilder Management, and it's great that Edwards has been working with the Masyc Group on development because Masyc has two or three people who really know home building," said Craig Schweikart, senior consultant at Shinn Consulting.

"But I'm concerned about the new company's long-term commitment to home builders," Schweikart said. "I would have felt more comfortable if I saw home builders mentioned on the corporate press releases as opposed to Edwards saying it planned to service its manufacturing clients."

Les Wyatt, chief marketing officer at Edwards, says PeopleSoft's plan is to help Edwards expand its customer base and look for opportunities to cross-sell. He says Edwards' strength in home-building management software can be complemented by PeopleSoft's expertise in sourcing, e-procurement and contracts management-all functions every building company needs.

The deal is expected to close in the late third quarter or early fourth quarter this year.

Wire service reports were used in part for this article.

Copyright 2003 Hanley-Wood LLC