PeopleSoft to Buy Vantive (Fool Plate Special) October 11, 1999

An Investment Opinion

PeopleSoft to Buy Vantive

By Dave Marino-Nachison (TMF Braden)
October 11, 1999

New PeopleSoft (Nasdaq: PSFT) CEO Craig Conway, who moved up to the top spot at the enterprise software maker late last month after founder David Duffield stepped aside, may have had to contend with the lukewarm reception new heads sometimes get when companies in trouble try to right themselves with inside, rather than outside, help.

(That followed the mid-August news that PeopleSoft appointed Steve Hill, another company man, its interim CFO after Al Castino left for an Internet startup. Hill is considered a fine replacement but many expect outside help to be brought in eventually.)

Conway moved quickly to attempt to generate excitement, today announcing plans to buy front-office automation software developer Vantive Corp. (Nasdaq: VNTV). Each share of Vantive will be swapped for 0.825 shares of PeopleSoft. Based on PeopleSoft's $17.25 per share close of Friday, the $433 million deal values Vantive at about $14.23 per share, a 59% premium. Vantive's shares were up accordingly this morning.

In product-specific terms, the deal combines PeopleSoft's human resource management, financials, distribution, manufacturing and supply chain products and related services with Vantive's front-office, customer relationship management (CRM) software. In press release terms, "The merger will enable the combined company to offer a comprehensive eBusiness solution providing robust applications to attract, service, retain, and analyze customers."

In late April, PeopleSoft launched an "open integration framework" platform that allows customers to link its offerings to those of other software providers, an early step in the company's move to create the backbone for its customers' e-business solutions. Today's news essentially fills in some of those ribs. (For a recent Foolish take on another company taking similar steps, click here.)

It's worth noting that Vantive offerings were already integrated into the open framework, and the companies launched a packaged integration product in August; a combined CRM offering is expected to launch early next year.

Both companies have had less-than-stellar 1999s -- here's a link to a March Fool Plate Special PeopleSoft investors won't remember fondly -- amid difficult environments for enterprise software companies with corporate spending widely down following year 2000 concerns. Though there have been signs of silver linings in this sector, clouds are still prevalent. Both companies are still busy building themselves back up, and merger-related integration issues will add extra stress to that task.

In encouraging news, PeopleSoft today said it expects Q3 EPS of between break-even and $0.02, with Wall Street looking for a penny's profit. The company is looking for revenues of $290 million to $310 million, down from $351 million last year.

Wall Street is expecting a break-even quarter from Vantive, which lost money in Q2.

Several other CRM software makers have been on a tear of late. The incorporation of Vantive might help PeopleSoft get back on the growth track again, particularly if trends in the enterprise space -- from which PeopleSoft will still make most of its money -- are improving as some industry types believe.

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