California enterprise software company PeopleSoft announced on Monday that it will acquire rival JD Edwards in a friendly merger worth around $1.7 billion.

The two companies trail Oracle and SAP in the applications market and independently came to the conclusion that they would compete more effectively by combining forces.

JD Edwards CEO Bob Dutkowsky said his company conducted a strategy review late in 2002 and concluded that combining strengths with PeopleSoft was its best option. Coincidentally, PeopleSoft reached the same conclusion.

"When we sat down and discussed the possibility we saw extra synergies," Dutkowsky told a telephone conference of analysts and journalists. JDE "understands how to win" in the mid-market and brings across a product range that is strong in manufacturing and covers both the open platform and AS/400 market, where it retains a very loyal customer base.

PeopleSoft's executives said that around one third of its new business in 2002 derived from the mid-market and acknowledged that JDE would help consolidate that push. There would also be an opportunity to cross-sell HR applications, where PeopleSoft is strongest, to the JDE customer base.

The transaction will be based on a share swap, with JD Edwards shareholders getting .86 of a share for each JDE share they hold. The Colorado-based company will become a wholly-owned subsidiary of PeopleSoft, with shareholders owning roughly 25% of the parent company.

Based on PeopleSoft's closing share price on May 30, the deal would be worth $1.7 billion, Parker said.

Parker expected to reap around $80 million in cost savings in the first full year, adding that "PeopleSoft and JD Edwards are financially stable, well run organizations."