Pleasanton, Calif. (June 3, 2003) - Enterprise software developer PeopleSoft Inc. plans to acquire rival J.D. Edwards & Co., to create what would be the world's second largest enterprise vendor, but it's uncertain how well it will play in the middle market.

The proposed stock deal would combine Pleasanton, Calif.-based PeopleSoft, best known for human resources management tools for very large corporations, with Denver-based JDE, which focuses on manufacturing management solutions for middle market companies. The combined company's $2.8 billion in annual revenue would rank it second to Germany-based SAP AG's $8 billion; Microsoft Corp., with $25.3 billion, is the world's largest software company, but enterprise applications have not been a major part of its total.

PeopleSoft indicated the deal could help it expand into the middle market of companies with under $500 million in annual revenue, but observers are skeptical. PeopleSoft has been unable to gain substantial middle market share after several years of trying, while SAP this year launched a major effort to go after small and midsized businesses in an alliance with accounting firm consolidator American Express Tax & Business Services, and Microsoft unveiled plans to build its SMB applications revenues to $10 billion.

"Both midsized and large enterprise customers will have access to the broadest suite of integrated enterprise software applications in the world," said PeopleSoft chief executive Craig Conway. However, Trip Chowdhry, an analyst with FTN Midwest Research, an independent research firm, countered "PeopleSoft will have a tough time driving a stake in the middle market with this deal because they and Edwards don't have the right technology mix to win on the pricing front,"

Chowdry noted that PeopleSoft's last large acquisition-- of customer relationship management specialist Vantive in 1999--took several years to be integrated efficiently. "The middle market can't wait three to four years for this integration," he said. In a separate press report, Gartner Group also questioned PeopleSoft's ability to work out integration issues in a timely manner.

-- John M. Covaleski

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