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July 18, 2003

PeopleSoft (Quote, Chart) Friday said it has closed its $1.8 billion acquisition of J.D. Edwards, making Oracle’s takeover bid for PeopleSoft more difficult to pursue.

The Pleasanton, Calif. software maker said it has purchased roughly 110 million shares, or 88 percent of the outstanding shares of Denver’s J.D. Edwards. PeopleSoft expects to acquire the remaining shares of J.D. Edwards before the end of August.

As for the remaining shares that were not tendered to give PeopleSoft a 90 percent stake in J.D. Edwards in the long-form merger, PeopleSoft spokesman Steve Swasey said as the majority owner of J.D. Edwards, the company would acquire the remaining 2 percent to complete the “second-step” merger.

“It’s not a question of if, but when,” Swasey said. PeopleSoft “owns the company, we’re in integration mode, which we formally started this morning.”

As announced earlier this week, J.D. Edwards stockholders who tendered their shares will receive the value of about $14.74 in cash, PeopleSoft stock or a combination of cash and stock for each share of J.D. Edwards common stock. J.D. Edwards stockholders who did not tender will receive $7.05 in cash plus 43 cents of a PeopleSoft common share for each J.D. Edwards share.

The companies also said J.D. Edwards board member Michael Maples was elected to the board of directors of PeopleSoft.

PeopleSoft President and CEO Craig Conway said in a public statement the combination of the two companies makes PeopleSoft the second largest enterprise applications software company in the world, next to German giant SAP.

Oracle appeared unfazed by the closing.

“We believe time is on our side,” said Oracle spokesperson Jim Finn. “Oracle remains committed to acquiring PeopleSoft – even with the addition of J.D. Edwards.”

However, analysts agree that Oracle now has a much greater task of swallowing the combined company. The Redwood Shores, Calif. software maker last bid $6.3 billion for PeopleSoft, a deal it expects to close August 15.

But with the new cost incursion of J.D. Edwards, Oracle would have to foot a bill of $7.3 billion for the combined company. That figure is predicated on the issuance of 52.6 million new shares in connection with the merger, thus increasing the cost of Oracle’s $19.50-a-share offer by about $1 billion.

Forrester Research analyst Paul Hamerman said the fact that PeopleSoft is issuing more shares than originally planned will make it more difficult for Oracle to consume an entity of PeopleSoft’s size and cost.

“Even at the current purchase price of 19.50 [per share], they have to purchase more shares,” Hamerman told internetnews.com. “This raises their cost and also raises antitrust implications.”

Despite these complications, Hamerman, who doesn’t think an Oracle purchase of PeopleSoft will be good for customers and the industry overall, said Oracle’s resolve and financial resources in pursuit of its quarry should not be underestimated.

The news comes a day after PeopleSoft reported results that seem to indicate its pulse is quite strong despite uncertainty created by Oracle’s (Quote, Chart) $6.3 billion hostile takeover threat.

PeopleSoft revealed total revenues of $497.4 million, up three percent from the quarter a year earlier and over $4 million higher than analysts estimates from First Call. Net income was $36.5 million, or 11 cents a share, approximately the same net income from the same period in 2002.

The company, which said it secured contracts with 100 new customers, reported license revenues of $112 million. PeopleSoft also reported earnings per share from recurring operations of 14 cents, higher than earlier estimates of 11 to 12 cents per share.

The company attributed the earnings to a sort of safety valve it kicked into action this quarter. To keep customers from fleeing in the face of the threat of a takeover bid by rival software maker Oracle, PeopleSoft devised a protection program that would issue rebates of as much as five times their software licensing fees should Oracle succeed.

The news, while positive considering the circumstances, is no longer much of a surprise. PeopleSoft announced two weeks ago that it expected to post solid earnings.

“PeopleSoft said all along it has a better plan for shareholders and customers,” said PeopleSoft President and CEO Craig Conway. “As you look beneath the surface of these financial results, you can see how strongly positioned we are to achieve that plan.”

Looking forward, PeopleSoft Chief Financial Officer Kevin Parker said the company expects total revenue for the third quarter to be between $470 million and $480 million, with license revenues of $85 million to $90 million. Analysts surveyed by First Call have forecasted third-quarter revenue of $476 million.

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