PeopleSoft ( PSFT) agreed to acquire J.D. Edwards ( JDEC) for $1.7 billion in stock, creating what the companies say will be the world's second-largest enterprise applications software firm.

Under the terms of the agreement, PeopleSoft will exchange 0.860 common shares for each outstanding J.D. Edwards common share.

PeopleSoft expects the transaction to add to its fiscal 2004 earnings on an adjusted basis, excluding the amortization associated with acquired intangibles, the writedown of deferred revenue and other purchase accounting adjustments.

Combined, the companies have about $2.8 billion in annual revenue, 13,000 employees and more than 11,000 customers in 150 countries.

J.D. Edwards will become a wholly owned unit of PeopleSoft, and Edwards shareholders will own roughly 25% of the capital stock of the combined company. The agreement has been unanimously approved by both boards of directors.

The companies expect to close the transaction in the late third or early fourth calendar quarter.

In premarket trading on Instinet, J.D. Edwards was gaining $1.79, or 15%, to $13.60. PeopleSoft was losing 37 cents, or 2%, to $16.02.

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