Q1 Woes Sink SmartForce, Centra Merger

SmartForce‘s planned purchase of Centra
, once hailed as “a watershed event for the e-learning industry” by executives, has been scrapped as both companies suffer
dismal first-quarters.

Instead, the firms will settle for a reseller and co-marketing pact. When announced in mid-January the all-stock deal carried a value of $284 million.

“While we continue to believe that there would have been a good, long-term strategic fit . . . we intend to make substantial and immediate operational changes to
better position ourselves for the difficult current market environment,” said Greg Priest, SmartForce’s CEO.

The Redwood City, Calif., company expects a first quarter loss of 26 cents to 27 cents per share on revenues of $42 million to $43 million, well below analyst
estimates. SmartForce will also take a charge of $2 million to $2.5 million related to the busted merger.

Priest also strongly hinted that layoff were coming, saying SmartForce has “planned immediate, substantial reductions in our cost base.” Details should come in an afternoon conference call.

Economic woes are also being felt in Lexington, Mass., where Centra said it will lose 17 cents to 19 cents per share on revenues of $7.4 million to $7.7 million. The
disappointing results were blamed on sluggish North American market as well as “reduced productivity of the company’s sales force” and management’s attention to
merger plans.

“The company plans to take immediate and proactive steps to address the factors which contributed to these results, including aggressive strategies for improving
business growth in North America,” said Leon Navickas, Centra’s chairman and CEO.

The double whammy sent both stocks into an early free fall. Shares of CTRA opened down 1.47, or 31 percent, to 3.26, while SMTF
was off 3.74, or 37 percent, to 6.4.