NEW YORK (CNN/Money) - PeopleSoft Inc. is buying J.D. Edwards in a stock deal worth about $1.7 billion, the companies said Monday.

PeopleSoft (PSFT: Research, Estimates), a leading provider of application software, will exchange 0.86 share of its stock for each share of J.D. Edwards (JDEC: Research, Estimates). Based on Friday's closing prices, that represents a premium of about 19 percent for J.D. Edwards shareholders. J.D. Edwards current shareholders will own about a quarter of the combined company after the deal closes, according to the companies' statement.

The statement said the deal would create the world's second-largest provider of enterprise applications software, which links its customers' back-office applications such as accounting and supply chain management and databases.

The purchase, which still needs the approval of regulators and the companies' shareholders, is expected to close in the late third or early fourth quarter and add to PeopleSoft's earnings per share in fiscal year 2004, excluding special items associated with the deal.

Shares of PeopleSoft lost 56 cents to $15.80 in pre-market trading Monday on Instinet following news of the deal, while shares of J.D. Edwards gained $1.69 to $13.50.