Shares in Irish e-learning company SmartForce plunged to a seven-year low of $4.89 (€5.17) on the Nasdaq yesterday as analysts delivered a lukewarm reaction to the company's merger agreement with US peer SkillSoft.

In Dublin, the prevailing view was that while the merger made strategic sense for the two companies, it was not guaranteed to lead SmartForce out of the financial mire which saw it sustain operating losses of $21.7 million in the first three months of this year.

"It's too early to judge whether it will solve the underlying problems or not," said Ms Jemma Houlihan of ABN Amro, who is maintaining her "hold" recommendation on SmartForce stock.

Ms Houlihan said the outline agreement should bring forward SmartForce's break-even date but, like other analysts, expressed concern about revenue projections for the combined entity.

The main questions raised relate to forward-looking statements contained within Monday's merger statement, where the guidance numbers for the new entity were substantially lower than the combined current market estimates for the separate businesses.

Ms Bernie Lardner of Davy Stockbrokers said that, while the merger made sense from a strategy point of view, the two companies appeared to have "pulled back their numbers fairly aggressively".

"The initial guidance numbers are quite low," she said, referring to a 2004 revenue forecast for the new entity of $255 million, tens of millions below the sum of the individual companies' projections.

For its part, SmartForce was characterising the merger as a vehicle to deliver revenue upside rather than a response to cost-cutting requirements. A company spokesman said, however, that the market reaction had not come as a surprise.

"We had fully expected that it would take some time before it was received warmly," said SmartForce vice-president of marketing and customer services, Mr Paul Henry. "It takes some time for investors and analysts to work out what it really means."

Mr Henry said the reduction in revenue forecasts could be largely attributed to a transfer to the SkillSoft accounting model, which he said would see "a lot of SmartForce revenue that basically disappears".

SmartForce was tight-lipped on the prospects for Irish jobs in the new-look company set to emerge from a completed merger, but it seems unlikely that the combined entity's 1,800-strong workforce will be unaffected. Ms Houlihan said she expected initial job cuts to reflect back-office synergies in areas such as accounting which are, in the case of SmartForce, conducted out in California.

In April this year, SmartForce announced it was shedding 421 jobs from its global workforce of 1,800 in a much-needed cost-cutting move. A staff of 500 in Clonskeagh in Dublin was expected to lose up to 80 of its number at that time.

Mr Henry said "no detailed picture" on the future shape of the company was yet available but "there may well be areas of duplication in the area of workforce".

On the positive side, Ms Houlihan said the fresh management that would result from the merger should be welcomed, particularly since the chief financial officer position was currently vacant at SmartForce.

Under the agreement, the roles of chief financial officer and chief executive in the new company will both fall to SkillSoft, while current SmartForce chief executive and chairman Mr Greg Priest will become chairman.

Ms Houlihan said this reflected SkillSoft's profitability and consequent position of strength in the deal.

"It appears to be more of a takeover than a merger," she said.

The deal is structured as a merger of SkillSoft into SmartForce, with SmartForce owning 58 per cent of the combined firm.

Mr Gerry Hennigan of Goodbody Stockbrokers meanwhile described the transaction as a "merger of equals" that reflected the synergistic activities of the two companies. He said the short-term outlook would remain difficult for the companies, adding that he expected the market to adopt a "wait-and-see" approach.

The merger, which has already received the support of major SkillSoft shareholder Warburg Pincus, is scheduled to be completed in September of this year.