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Analysts Split on Peregrine’s Future

Analysts Split on Peregrine’s Future

Recent Cuts in Firm’s Work Force May Signal Alignment for Its Sale

BY MIKE ALLEN

Senior Staff Writer

Peregrine Systems’ announced slashing of 48 percent of its work force last week will likely continue as the San Diego software company closes down overseas offices and sells off other operations.

Peregrine handed out pink slips to some 1,400 employees, including 340 workers at its headquarters in Carmel Valley, giving workers notice their last day would be June 28.

While complete details of office closures weren’t available, the company revealed it will close offices in Indianapolis and Plymouth, Pa., near Philadelphia, and that some 50 other sales offices around the country are being evaluated.

In addition, the company said it will likely close and lay off workers at offices in Europe, Asia and Latin America.

Peregrine has some 780 employees in Europe, most of whom work in the United Kingdom, said spokeswoman Ellen Wolfe.

The cuts left Peregrine with some 1,500 employees, including 410 in Carmel Valley, where the company leases three buildings and has one under construction.

Last week’s layoffs come amidst a torrent of bad news for Peregrine, which revealed beginning in early May it would have to restate its past three fiscal-year financial results, may have to write down as much as $100 million in sales it previously booked, fired two auditors and is still looking for a new one, and is under investigation by the Securities and Exchange Commission.

May Be Acquisition Target

The extensive cuts may signal Peregrine is readying itself to be acquired by a larger software firm, say some observers.

“I think they’re under water,” said Bruce Ahern, a local high-tech consultant. “They’re apparently running out of cash and had to cut expenses to keep their doors open. In their present form, their long-term prospects are tenuous at best.”

Ahern said Peregrine’s proven asset management software and customer base makes the company an attractive acquisition target. The software allows companies to better track assets such as real estate, computers and vehicle fleets.

However, a big negative is the huge number of class-action shareholder lawsuits it is now fighting, Ahern said.

Peter Shaw, a partner in Windward Ventures, a local venture capital firm, said while cutting nearly half a company’s staff is unusual, the firm has significant value and could survive its current problems.

“I think it’s more likely that it would be acquired than simply disappear,” said Shaw, who has been a CEO at several local software companies.

Beyond Peregrine’s accounting and legal woes, it would have a difficult time recovering because the economy is down, said Ken Bender, managing director for Software Equity Group, a San Diego-based consulting firm.

“IT budgets have been cut substantially or are flat for many Fortune 1,000 companies so they’re not looking to spend a whole lot of money now,” Bender said.

Gary Greenfield, Peregrine’s recently hired CEO, said in a press release the layoffs “will have minimal impact on our customers and the level of services and support we offer.”

In the same release announcing the staffing cuts, Peregrine said it is near completing the sale of its supply chain enablement business, which consists mainly of two businesses it previously acquired: Harbinger Corp. and Extricity Inc. The unit has some 540 employees, most of whom are based in Atlanta.

Peregrine said the buyer for the unit is Golden Gate Capital LLC, a San Francisco private equity group, but did not reveal the price paid.

The sale is expected to close at the end of June.

In other recent news, Peregrine revealed it obtained a $50 million secured term loan for future operating expenses from two lenders, Foothill Capital Corp., acting as administrative agent for Ableco Finance LLC. The company said monthly payments on the loan would be $1.15 million and begin next February, with the balance due Dec. 31, 2003.

In May, Peregrine said it had about $100 million in cash at the end of March. Peregrine hasn’t reported its most recent full fiscal year or fourth quarter results yet. Its fourth quarter ended March 31. For its 2001 fiscal year, Peregrine reported a net loss of $852 million on revenues of $564.7 million.

Peregrine stock closed at $1.14 June 20, but was trading above $31 about a year ago. It reached a low of 73 cents last month.

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