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PeopleSoft completes J.D. Edwards acquisition

This morning PeopleSoft completed its acquisition of J.D. Edwards, throwing another wrench in Oracle's takeover plans.

This morning, PeopleSoft Inc. announced it had completed its $1.8 billion acquisition of J.D. Edwards & Co., creating the world's second largest enterprise application software company and making a potential takeover by Oracle Corp. more difficult.

PeopleSoft purchased 88% of the outstanding shares of J.D. Edwards and plans to acquire the remaining stock by summer's end.

Together, the companies have annual sales of $2.8 billion and 11,000 customers worldwide.

PeopleSoft will now work on better defining a product strategy, but executives have stated publicly their intention to run three separate product lines -- one for large enterprises, another for the midmarket and a third dedicated to IBM's iSeries (AS/400) users. The companies have also stated their intentions to leverage J.D. Edwards' strength in asset management and PeopleSoft's depth in supplier relationship management across the product portfolio.

"The combination expands not only our customer base, product offerings and markets, but also our talent," PeopleSoft CEO Craig Conway said in a statement. "Our two companies share a high-performance, customer-focused culture, and we look forward to welcoming our colleagues at J.D. Edwards to the PeopleSoft team."

Several high-ranking J.D. Edwards executives, including CEO Bob Dutkowsky, have agreed to stay with the company during the transition period.

In a release, Dutkowsky said, the combined company will "continue to make our customers stronger and solve their most pressing business problems."

The question, however, is how long PeopleSoft -- even with J.D. Edwards -- can manage to fend off Oracle's takeover bid. Because PeopleSoft had to issue extra shares in order to complete the J.D. Edwards deal, reports have estimated that the takeover would cost Oracle an extra $1 billion -- or a total of $7.3 billion. Its current offer stands at $19.50 per PeopleSoft share.

"The challenge and obstacles become significantly greater because, from the get-go, Oracle was not interested in J.D. Edwards," said Kelly Ferguson, analyst with with Virginia-based Current Analysis. She added that Oracle hasn't thought out its product plans for J.D. Edwards other than to make a vague commitment of support.

Ferguson expects that, to avoid the appearance of impropriety, Oracle will continue to pursue PeopleSoft. But she thinks antitrust hurdles could provide a good cover for it to eventually abandon its plans. The Department of Justice has asked Oracle to provide additional information about a possible PeopleSoft takeover.

Today's completed acquisition not only gives PeopleSoft new midmarket technology but also helps it leverage J.D. Edwards' strength in manufacturing. Sheryl Kingstone, an analyst with the Boston-based Yankee Group, sees the deal as more about market expansion than technology expertise.

She thinks PeopleSoft will have to clarify its product strategy to "make sure they're not running three separate companies."

"They have to take the [J.D. Edwards] code base and move it over to PeopleSoft code," she said.

Ferguson said the combined PeopleSoft/J.D. Edwards poses "no major implications" for customers in the short term. However, she agreed that running three separate product portfolios won't be cost effective for the company over the long haul.

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