Stock Market Punishes Peregrine-Harbinger Over Proposed EDI-centric B2B Merger
Two seasoned high-tech companies who proposed a business-to-business merger built around Enterprise Data Integration (EDI) technologies rather than the more buzz friendly XML saw their stock values pummeled last month in the midst of the wider Nasdaq stock slide.
Peregrine Systems Inc. (PRGN, www.peregrine.com) unveiled a definitive agreement to acquire Harbinger Corp. (HRBC, www.harbinger.com) by trading three-quarters of a share of Peregrine stock for each outstanding share of Harbinger stock. Expecting to issue about 36 million shares, Peregrine valued the deal at $2.1 billion based on PRGN's April 5 closing price of 58.
Peregrine's stock value nosedived from 58 to 36.75 on heavy trading April 6. Since then the stock continued to fall, and closed at 21.75 by May 8. Harbinger shares had fallen from a pre-announcement close of 24.125 to 15.3125 by mid-May. In all, the deal's value has shaved Harbinger shareholders' take from nearly $1 billion over the market value to about $50 million over the market value. The total value of the deal dropped more than 60 percent to about $780 million.
Peregrine sells what it calls Enterprise Infrastructure Management software for cataloguing, assessing, and leveraging corporate assets, people, and ideas. Peregrine officials see Harbinger with its EDI and e-commerce business as an appropriate stepping stone to moving its software into e-procurement and other business-to-business markets. The companies say their aim is to build a unified infrastructure for industry portals and B2B enterprise integration.
The merger between the two e-business practitioners is "purely complementary, with no significant overlaps," says Steve Gardner, president and CEO of Peregrine (www.peregrine.com). "What Harbinger does is inter-enterprise, whereas what Peregrine does is intra-enterprise," Gardner says.
As the stock prices spiraled downward, the companies assembled commentary from technology analysts and financial analysts in support of the deal. In a May 8 letter to shareholders, Harbinger president and CEO James Travers signaled unwavering support for the merger. "We firmly believe that this combination is the right course for our Company," Travers wrote. Shareholders and regulators would have to approve the deal before it would become final. The deal had been expected to be complete in July.
Based on a new study across 40 different industries, the Yankee Group (www.yankeegroup.com) now projects that B2B e-commerce transactions will rise to $2.78 trillion by the year 2004.
Peregrine provides software and services to about 6,000 enterprise customers, including 90 percent of the Fortune 500. Bank of America, Chase, United Airlines, EDS, Qualcomm, the US Treasury Department, and the Dutch Ministry of Defense are a few of the members of Peregrine's customer list.
Harbinger brings about 42,000 customers to the deal. Although some of these are big names like Dell Computer Corp., Toshiba, Mitsubishi, and Dow Chemical, 85 percent of Harbinger's user base consists of small and mid-sized companies. "Large companies tend to buy from smaller companies," Gardner says.
Harbinger, which has long offered a traditional value-added network EDI service, has been increasingly migrating to Web-based EDI. Today, 54 percent of EDI transactions managed over Harbinger's hubs are moving over IP, as opposed to EDI's traditional VAN (value-added network) transport architecture.
Gardner sees a lot of synergy between traditional EDI and e-commerce growth. EDI can be just as effective as a means of B2B integration as "the shining knight of XML," he says. "Right now, 98 percent of the B2B market is EDI, in comparison to only 2 percent for XML." Gardner also estimates current penetration levels in the B2B market of only 5 percent to 10 percent. "In almost every industry, there's already more than one exchange. I think the opportunities are massive, and largely untapped," he adds.
Gardner also dismisses criticisms that have been leveled by some industry observers that EDI is a fragmented protocol. "As XML emerges, it too is already becoming characterized by multiple flavors," he says.
One strength of Harbinger's that Peregrine deems particularly important in portal building is the ability to "rationalize" catalogs, so that users can search for and access products from multiple vendors across a common lexicon. "One company might call a PC laptop a laptop, while another might call it a notebook," Gardner says.
Gardner expects that Peregrine will contribute, among other things, the ability to "track every asset through each step of the lifecycle, to reduce costs and free companies' unused capital."
Outside of asset management, other products and services from Peregrine are geared to facilities management, fleet management, knowledge management, network administration, and Web-based employee self-service.
B2B Merger at a Glance
Executives at Peregrine Systems Inc. and Harbinger Corp. are defending a B2B merger proposal that prompted a major slide in stock value for each company. The proposal was unveiled April 5.
| || ||Peregrine|| ||Harbinger|
|Headquarters|| ||San Diego|| ||Atlanta|
|Founded|| ||1981|| ||1983|
|Employees|| ||1,100|| ||1,000+|
|1999 Revenues|| ||$138 M|| ||$155.5 M|
|NASDAQ symbol|| ||PRGN|| ||HRBC|
|Stock value 4/5|| ||$58|| ||$24.125|
|Stock value 5/8|| ||$21.75|| ||$15.3125|