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PeopleSoft bolsters offense with Vantive buy

The software company's acquisition of Vantive today marks a pairing of two underdogs that may help both emerge stronger as a united front.

PeopleSoft's acquisition of Vantive today marks a pairing of two underdogs that may help both emerge stronger as a united front.

Both companies have tackled sales force problems, company-wide reorganizations, executive turnover, and financial shortfalls in the past year. Vantive, with nearly 900 customers, is overshadowed in its space by No. 1 customer relationship software maker Siebel Systems. Meanwhile, PeopleSoft, with its 3,300 customers, has fallen further behind enterprise resource planning (ERP) rivals SAP and Oracle.

The $433 million acquisition is expected to slightly improve year 2000 earnings for the combined companies. The deal, one among several PeopleSoft had been pondering for months, is expected to close in the first quarter of next year.

Analysts say business could soon be looking up for PeopleSoft and Vantive if the acquisition goes smoothly. The companies have worked together as marketing partners for two years and say their software already is integrated. Building a common interface to use the two products together, however, will be the next step.

"It's an offensive play," said International Data Corporation analyst Judy Hodges. "PeopleSoft could not have continued to perform well in the market unless they made an acquisition in front office."

"The rivalry is only going to intensify" among PeopleSoft competitors SAP, Oracle, JD Edwards and Baan, Hodges said. "It's a real war now."

PeopleSoft chief executive Craig Conway, in an interview today, said the deal "is a tremendous milestone for PeopleSoft." Conway said the company had discussed possible deals with Vantive, Pivotal, Siebel Systems, and Clarify before returning to Vantive two and a half-weeks ago to hammer out a deal. Conway said the company uses Vantive software for call center and customer service internally, and will now switch over from Siebel to Vantive for sales as well.

Teaming up in a field of loners
For Vantive, the PeopleSoft deal gives them a partner, while their opponents go it alone in a market that is quickly consolidating.

"Now, we have a chance to go to market with all three integrated pieces," said Tom Thomas, Vantive's chief executive, who has not yet been assigned a new role at PeopleSoft. "Clarify is still going to be hanging out there as a CRM player."

The CRM market is growing at a much faster clip than the ERP market that PeopleSoft competes in. IDC expects the worldwide market for customer relationship management software and maintenance will grow to $11 billion in 2003, from $1.9 billion in 1998.

Together, PeopleSoft and Vantive can sell customers a complete software package intended to automate their sales from back to front end. PeopleSoft will sell the software that automates a company's financial and accounting needs, and Vantive installs the call center, sales, and customer management component.

Customers can use Vantive software to determine who their most profitable customers are and how much a company sells by geographic region or by salesperson. Add new e-commerce software from PeopleSoft and customers gain a single package for tracking sales on the Web, order ship dates, and customers maintenance records, analysts said.

A combined CRM product from the companies is expected early next year. About 20 percent of PeopleSoft's customers now have Vantive installed, according to Conway.

A complete offering, if successfully delivered, will be beyond what Oracle or SAP currently offer, Hodges said. SAP won't have a full customer relationship management software suite to ship until the middle of next year. Oracle has been developing a CRM software suite for several years, but the products aren't generally available to customers, Hodges said, noting that the company is lumping its e-commerce software in with CRM and isn't even up and running internally across the company on its own CRM software.

Wrinkles to iron out
Despite the strengths of today's announcement, both PeopleSoft and Vantive will need to fix internal problems to move forward as a united company.

Vantive today said it expected to report a net loss for the third quarter of between 21 and 23 cents a share, mainly because of a shortfall in software license sales in North America. Wall Street analysts had expected the company to break even, according to First Call reports.

"Clearly we've been very public about the need to improve field sales in North America," Thomas said.

Meanwhile, PeopleSoft continues to push back from last quarter's dismal results, when the company reported more than 60 percent software license downturn and plummeting profits amid an overall ERP market slowdown.

"1999 started with a cold shower," Conway said, adding that the company is still rebuilding the senior management team that walked out over recent months, along with company co-founder and former CEO Dave Duffield, who remains as board chairman. The company expects to break even or earn .02 a share in the third quarter on $310 million in revenues, down from $351 million a year ago. Wall Street is expecting a penny's profit, according to First Call.