Mixed News for Peregrine

Sells supply chain enablement business, appoints new CFO, faces delisting by NASDAQ

San Diego  June 28, 2002  Beleaguered software company Peregrine Systems reported Thursday that it has completed the sale of its supply chain enablement (SCE) business to investment house Golden Gate Capital, one of several steps the company is taking to trim down and refocus on its core enterprise asset management business.

The SCE business sold for approximately $35 million in cash before transaction costs, according to Peregrine. Golden Gate will keep the SCE business' current management team and staff of 500, according to a research note from technology consultancy AMR Research. Peregrine built the SCE business, which has been profitable, through the acquisition of Harbinger and Extricity.

Another Peregrine acquisition, Remedy, will operate as an independent business, with Larry Garlick, a Remedy co-founder, at the helm.

In addition to the divestiture, Peregrine has announced plans to cut 1,400 jobs from its remaining staff of 2,900 as the company moves to reduce its costs. AMR reported that the cuts are expected to have little effect on customer support and development, with the bulk of the cuts coming on the sales and marketing side.

Founded in 1981, Peregrine was known for its information technology asset management solutions prior to commencing an acquisition spree about three years ago that took it into the supply chain management business.

Currently the company is struggling to regain its footing after questions arose in May about its accounting practices. Peregrine has said it intends to restate its financial results for fiscal years 2000 and 2001 and the first three quarters of fiscal 2002, and the company's audit committee has begun an internal investigation of the company's accounting practices. The Securities and Exchange Commission has initiated its own formal investigation.

The accounting woes prompted the resignation of the company's CEO and chief financial officer at the beginning of May. Under new CEO Gary Greenfield, the company this week appointed its second CFO, Ken Sexton (replacing interim CFO Fred Gerson), and its third accounting firm, PricewaterhouseCoopers (replacing KMPG, which replaced Arthur Andersen). KPMG had reportedly found that the company overstated its revenue by perhaps as much as $100 million.

Also this week, the NASDAQ said that it would delist Peregrine as of July 5 because Arthur Andersen said the company's financial statements from 2000 through the first three quarters of 2002 could not be relied upon.

So can Peregrine recover? AMR said the timing of Peregrine's problems is not good, coming as they do as competitor MRO Software appears to be enjoying good financial health. Yet AMR predicted that, "once the dust settles," both companies will emerge stronger and with better products, and the consultants conclude, "Users should get in now while the buyer has power since both companies are solid and will be around for the long haul."