A spokesman said that PeopleSoft will decide by early 2002 whether to exercise an option to buy Momentum. The company must buy back the firm or pay a 10% royalty for 10 years on software developed by the spin-off.
Momentum was formed in 1998 by PeopleSoft to vary software development costs, an accounting practice that has since been barred by US authorities.
The move was intended to help PeopleSoft financially by allowing the company to shift its expensive research and development costs out from its accounting books.
But a Financial Accounting Standards Board task force determined in May 2000 that companies are no longer permitted to set up separate units to fund R&D.
As an alternative to taking on its own programmers, Momentum paid PeopleSoft to write new programs. The fees were listed on PeopleSoft’s books as revenue. PeopleSoft then paid Momentum a royalty to license those products.
PeopleSoft has an option to buy Momentum for between Pounds 62m and POunds 65.5m depending on when it chooses to exercise its option. It will cost Pounds 62m until 16 February, Pounds 63.7m between 16 February and 15 May, and Pounds 65.5m afterwards.
PeopleSoft had the option to license any products and technology developed by, or at the direction of, Momentum, and also retained an option to purchase all of the Momentum shares at a price set according to a predetermined formula.
Momentum, which had a profit of Pounds 347,000 in its first four months as a company because of interest on funds from PeopleSoft, has had losses ever since.
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