Three months after completing its $1.7 billion acquisition of J.D. Edwards,
announced Monday morning a bevy of integrated products aimed at creating a unified customer base and sparking significant top-line growth.
The importance of the 11-product announcement goes beyond the particulars of the technology involved -- if the efforts fail, it could make it harder for PeopleSoft to fend off
hostile takeover bid.
Although the merger of the two enterprise-software makers has already been accretive, most -- if not all -- of the additional revenue on the books is a result of sales that PeopleSoft and J.D. Edwards would have made had they remained separate.
"The merger of PeopleSoft and J.D. Edwards so far has been one plus one equals two, or even 1.8, since the applications market is shrinking," said Erin Kinikin, vice president of Forrester Research. "Both PeopleSoft and J.D. Edwards had their own markets, and those markets are still intact. The opportunities for cross-sell could change the equation, but we haven't seen it yet."
Until now, J.D. Edwards customers were drawn largely from medium-sized manufacturing companies, a market that PeopleSoft, which historically sold financial and human resources applications to larger enterprises, has not penetrated.
On Monday the company unveiled seven integrated applications combining features from the former J.D. Edwards and the premerger PeopleSoft that either group of customers could use. In addition, PeopleSoft Chief Technology Officer Rick Bergquist said companies that had been using J.D. Edwards' flagship business applications will be able to port that data into four existing PeopleSoft business analytics applications. All of the new products will be generally available on Dec. 17.
"In September we promised to deliver four new products by the end of the year. We've exceeded that and proved that we will provide much more value to customers," Bergquist said.
Bergquist declined to speculate how much revenue the company expects to generate from the new applications. But he and other PeopleSoft executives are obviously excited.
If the products falter, however, this would provide ample ammunition for Oracle CEO Larry Ellison. Ellison has argued for months that PeopleSoft shareholders stand to make more money by selling to his company for $19.50 a share vs. waiting for the fruits of the merger with J.D. Edwards.
Moreover, the strong financials PeopleSoft has recorded recently have been viewed skeptically by some analysts.
In October, the applications-software maker, under intense pressure to outperform in order to fend off Oracle's attack, reported pro forma earnings of 17 cents a share, beating analyst estimates gathered by Thomson First Call by 6 cents.
But to achieve those results, PeopleSoft excluded an expense tied to its acquisition of J.D. Edwards that it had included for other previous acquisitions, noted Sanford C. Bernstein analyst Charlie Di Bona. (Bernstein does not have an investment banking relationship with PeopleSoft.)
The company has also been criticized -- and sued by Oracle -- for its so-called
money-back offer, in which customers are promised refunds of two to five times their license fees if PeopleSoft is acquired. PeopleSoft stated that $155.9 million in revenue was collected with that change in place.
Still, the PeopleSoft-J.D. Edwards merger won a good deal of sell-side support. Richard Williams of Summit Analytic Partners is one of the most bearish analysts following enterprise software. Nonetheless, he has a buy rating on PeopleSoft, even though he is negative on the rest of the sector. "It gives them a financial shot in the arm, letting them write down 75% of the recurring revenue from J.D. Edwards."
The J.D. Edwards revenue is making it possible for PeopleSoft to keep its share price above Oracle's offer for at least a few quarters, which could be enough to defeat the takeover, Williams said. Strategic concerns aside, PeopleSoft has executed very well in the last few months, he added. (Summit does not have an investment banking relationship with PeopleSoft.)
Analyst Brendan Barnicle of Pacific Crest Securities said performance of the merged companies has been "compelling, and despite lots of skepticism the merger was accretive very quickly." (Pacific Crest does not have an investment banking relationship with PeopleSoft.)
Barnicle also noted that while Oracle's offer provides a floor for the stock price, it also creates something of a ceiling, since no one expects Ellison to pay a much larger premium for the company than he is already offering.
Finally, PeopleSoft's peers -- including German software giant
-- are all trading at about 30 times 2004 revenue estimates, while PeopleSoft is trading at about 20 times revenue estimates, he added. "This makes us very positive on the stock."