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PeopleSoft's Q3 earnings higher than expected

PeopleSoft reported a loss of 2 cents per share for the third quarter, but the software maker's earnings were higher than originally expected. In an earnings call today, CEO Craig Conway talked about how his company's numbers were affected by Oracle's hostile takeover bid and the J.D. Edwards merger.

Enterprise software vendor PeopleSoft Inc. today announced higher-than-expected quarterly earnings amid two major upheavals in the marketplace: a hostile takeover bid by Oracle Corp. and PeopleSoft's own acquisition of J.D. Edwards & Co.

The Pleasanton, Calif., company reported quarterly earnings of $624 million, above earlier guidance of $575 million to $590 million. Losses per share were 2 cents, better than guidance of a loss of 9 to 10 cents per share. The company had a net loss for the quarter of $7.3 million.

"The original benefits of combining PeopleSoft and J.D. Edwards are just now beginning to show," PeopleSoft chief executive Craig Conway said in an earnings call this morning. "It's so early that these few financial results do not yet reflect any of the financial synergy."

The third quarter results reflect $2 billion in one-time accounting adjustments relating to the J.D. Edwards acquisition. If not for those adjustments, PeopleSoft said, it would have earned $62 million, or 17 cents per share.

PeopleSoft acquired J.D. Edwards in July for $1.8 billion, creating the second largest enterprise application software company. Rival Oracle, of Redwood Shores, Calif., had launched a hostile takeover bid for PeopleSoft in June. PeopleSoft stocks closed at $20.81 Wednesday on the Nasdaq, above Oracle's most recent tender offer to shareholders of $19.50 per share.

Today's announcement of a strong quarter will likely make Oracle's attempted takeover more difficult, some observers said.

"What looks increasingly clear is that either PeopleSoft is executing better than plan or that the tech economy is improving and the valuation that Oracle had proposed in its offer was probably a little too low relative to what has transpired," said Jamie Friedman, a financial analyst with Fulcrum Global Partners LLC. "Oracle's got to raise its bid. No shareholder is going to tender at $19.50 when the stock is at $21 and on its way up. This could easily be a $25 or $30 company. It's going to be a long time before it goes back to $19."

The benefits of the acquisition of J.D. Edwards will become more apparent this quarter, with earnings per share of 18 to 19 cents, excluding one-time accounting costs, chief financial officer Kevin Parker predicted.

Oracle claimed last month that it was committed to its takeover of PeopleSoft, but Conway struck a positive note following the earnings announcement. While the bid was on the minds of customers, it is no longer a factor, Conway said.

"It's fair to say that every single transaction we did in Q3 came with the requirement of an update to Oracle's approach," Conway said. "Most customers feel the saga is over."


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