Peregrine shares, which plunged 37 percent yesterday, slipped another $3.13 today to close at $33.63. Meanwhile, the company that it intends to acquire, Harbinger, also dropped. Harbinger shares fell $1.94 to $24.63, leaving the shares up only slightly since Wednesday's acquisition announcement.
On Wednesday, the companies said they planned to merge in a stock swap that was valued at $2.1 billion. Under terms of the deal, Peregrine would trade 0.75 of a share for each Harbinger share. The sharp slide in Peregrine's stock has reduced the value of the acquisition to about $1.2 billion.
According to Peregrine, the acquisition has no set price for the company's shares that would cause the deal to be canceled.
The merger was touted as a good marriage, but investors have been unimpressed. Peregrine provides inventory management and procurement software that helps companies manage systems such as information technology, telecommunications, building and transportation fleets.
Harbinger specializes in offering services and software to businesses so they can link their internal networks with other companies. This allows for the creation of marketplaces where companies can buy and sell products with each other.
Analysts also have registered mixed reaction s. Bear Stearns and First Albany reiterated "buy" ratings on Peregrine, while analysts at Donaldson, Lufkin & Jenrette downgraded the stock to "market perform" from "buy." Prudential cut the company to "accumulate" from "strong buy," and CIBC World Markets cut the stock from "strong buy" to a "hold."
"There's a 'shoot first and then raise your head and look around' attitude about this stock right now," said Neil Cooper, senior research analyst at Seidler Companies.
The slide in Peregrine's shares indicates that investors thought the price being paid for Harbinger was too high, but "I don't think it was that obnoxious a price," said Todd Weller, a business-to-business analyst for Legg Mason, who covers Harbinger. Weller noted Harbinger shares have been beaten down recently, having traded as high as $39.88 over the past 52 weeks and as low as $6.12.
"From the conversations I've had with Harbinger management, they think that this merger is a good strategic fit for them," Weller said.
While some investors apparently have doubts about the combination of the two companies, Peregrine CEO Stephen Gardner is optimistic about the synergies. "At the risk of sounding over the top, we are the real thing," he said.
One uncertainty surrounding the merger is Harbinger's electronic data interchange (EDI) catalog technology, which is viewed by some as antiquated. Proponents of the merger contend Harbinger's e-commerce network services complement Peregrine's procurement and infrastructure management software.
Although EDI software is more inflexible than the next generation XML, Legg Mason's Weller said Harbinger's track record with the software and of managing large and unwieldy networks is valuable.
"Peregrine was moving into e-procurement software, but they didn't have a network like Ariba and Commerce One," said Weller.
Harbinger is the more profitable of the two. The company reported sales of $155.5 million for 1999 and $15.6 million in net income, while Peregrine reported $138.1 million in sales last year and a net loss of $23.4 million.