SmartForce/Centra merger off

SmartForce, the world's largest e-learning company, has been forced to withdraw plans to merge with collaboration tools vendor Centra, and has warned that redundancies are inevitable.

The company is expecting to post revenues of between $42m and $43m for the first quarter of 2002, with preliminary financial results showing a 35 per cent drop in revenues compared with previous predictions.

SmartForce blames the overall economic climate and sluggishness in the sales cycle for the financial shortfall.

The results are due out on 18 April but SmartForce has said it expects to report a loss of between 26 and 27 cents per share, plus an additional one-time charge of between $2m and $2.5m for costs associated with the planned Centra merger.

The company's shares fell more than 30 per cent on the announcement.

In a statement, chairman and chief executive Greg Priest blamed a very difficult climate for enterprise software companies generally, and e-learning firms in particular.

SmartForce has said it will reduce its cost base substantially, refocus the business on core strategies and eliminate peripheral activities so that it can operate profitably until the market picks up.

Centra, meanwhile, said it will lose between 17 and 19 cents per share on revenues of between $7.4m and $7.7m.

The disappointing results were blamed on a sluggish US market as well as "reduced productivity of the company's sales force" and management's attention to the merger plans.

But SmartForce international vice president Paul Henry denied that the results reflected widespread disillusion with e-learning.

"This is a difficult market," he said. "Although there's been plenty of activity it's taken longer to get transactions closed. But I think one of the reasons we've been able to weather the storm is because the return on investment is so demonstrable."

E-learning came under fire in November last year after a study by analyst IDC criticised many of the offerings on the market for failing to meet business objectives, and for being too costly and time consuming to link to other back-office systems.

Instead of merging, the two companies have signed a reseller and co-marketing partnership, giving SmartForce the right to resell Centra's CentraOne web collaboration platform, and giving both parties the right to co-market each other's products into their respective customer bases.

SmartForce's e-learning offering includes an enterprise wide infrastructure to support company-wide e-learning initiatives including a learning management system, custom content and content publication tools.

But e-learning analyst Clive Shepherd warned that the financial results were bad news for the e-learning sector as a whole.

"Obviously this isn't good news for SmartForce but it doesn't send out a good picture to the industry at all," he said. "It could be that the market is confused because there are more players, but it's not good news for the e-learning industry."

"Would it have been the right idea for the two companies to merge in the first place? I don't think there's as much synergy between the two companies as was first implied. They're completely different animals - one's a content company and the other's a technology platform," Shepherd added.