Business software developer Peregrine Systems watched its shares tumbled 20 5/8, or 36 percent, to 37 3/8 Thursday after analysts downgraded the stock following the announcement of its pricey purchase of Harbinger Corp.
Peregrine (Nasdaq: PRGN) said late Wednesday that it would buy the e-business software maker for $2.1 billion. After Thursday's selloff, the deal is now worth around $1.3 billion.
On Thursday, Prudential Securities analyst David Breiner cut the stock from a "strong buy" recommendation to "accumulate" while Donaldson, Lufkin & Jenrette slashed it from a "buy" rating to "market performer."
"We believe the Street will take this negatively as it is an expensive deal," Breiner said in a research note. "It seems like a logical extension of their business, but Peregrine is buying a company that doesn't grow as fast."
Harbinger (Nasdaq: HRBC) shares were up 2 13/16, or 11 percent, to 26 15/16 Thursday afternoon.
The deal will merge Peregrine's employee self-service and electronic infrastructure management products with Harbinger's business-to-business e-commerce delivery solutions, the companies said in a statement.
Peregrine had been willing to pay an 80 percent premium for Harbinger based on Wednesday's stock price.
"Our initial reaction to this proposal is ecstatic. Peregrine offers much of what Harbinger had been looking for in a suitor. They are a strong international partner and they can offer new channels through which Harbinger can distribute their product," Prudential Securities analyst Paul Merenbloom said in a research note.
The deal is expected to close sometime in July.
Peregrine shares moved up to a 52-week high of 80 5/8 in March after splitting 2-for-1 in February.
All 12 analysts covering the stock maintain either a "buy" or "strong buy" recommendation.