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Oracle offers $5.1 B for PeopleSoft

UPDATE - Database and applications giant Oracle Corp. has launched an effort to take over applications competitor PeopleSoft Inc. for about $5.1 billion. The move comes mere days after PeopleSoft moved to purchase applications player J.D. Edwards for $1.7 billion.

The Oracle move appeared unwanted on the part of PeopleSoft. Craig Conway, PeopleSoft’s president and CEO, called it "atrociously bad behavior from a company with a history of atrociously bad behavior.”

Oracle's Chairman and CEO, Larry Ellison claims PeopleSoft approached Oracle about a merger a year ago. The companies did not publicly pursue such a merger.

About a year ago, said Ellison, "Craig Conway came to me about combining the PeopleSoft application business with the Oracle application business. At that time, we were unable to agree about structure.

"We think the time is right to offer PeopleSoft shareholders an alternative plan than what PeopleSoft management has proposed," added Ellison.

Ellison said Oracle would not be actively selling PeopleSoft products to new customers, but would provide enhanced support for all PeopleSoft products. He said the company planned to fold advanced features from the PeopleSoft products into future versions of the Oracle eBusiness Suite.

There is no plan to integrate the product lines of the two companies, according to Jeff Henley, Oracle's executive VP and CFO. The company is using cash reserves and available bridge financing to back the deal, said Henley. Oracle has offered $16 per share for PeopleSoft stock.

This proposed deal is quite different than PeopleSoft's planned merger with J.D. Edwards or, for that matter, most mergers in recent software industry history. As such, it will come under special scrutiny by industry analysts.

So-called "hostile takeovers," in which one software company goes directly to shareholders to merge with another company, sometimes occurred in the earlier decades of the corporate software industry. Clearly, some camps will characterize Oracle's move as just such a hostile takeover.

In fact, Oracle's Ellison openly criticized PeopleSoft's developer resources, revenue trends and the terms of the PeopleSoft-J.D. Edwards merger during a teleconference announcing the takeover plan.

An initial reaction of skepticism was voiced by analysts at AMR Research Inc., who characterized the hostile takeover bid as "a typically provocative move by Oracle" with an offer price that is "probably too low." The AMR analysts, including John Bermudez, wrote a June 6 morning report saying that this may be an attempt by Oracle to undermine PeopleSoft's bid for J.D. Edwards.

The AMR analysts also suggested that should the Oracle takeover be successful, it might be good news for Germany-based SAP since PeopleSoft customers, faced with the prospect of apparently having little support for their existing PeopleSoft installations and having to migrate to the next release of Oracle, might select another vendor such as SAP.

In a statement released by PeopleSoft, CEO Conway characterized Oracle’s cash tender offer as “a transparent attempt to disrupt the acquisition of J.D. Edwards by PeopleSoft.”

PeopleSoft said that, as required by law, its board of directors will review the Oracle offer and make a recommendation to shareholders. In the meantime, PeopleSoft urged its shareholders to “take no immediate action.”

Motives, gamesmanship

Win or lose, Oracle’s move could hurt PeopleSoft in the near term. At the least, it clouds the company’s efforts to pair with J.D. Edwards. Meanwhile, said Curt Monash, president at analyst firm Monash Information Services, it puts PeopleSoft sales in some peril.

“Oracle indicated that it intends to freeze development of PeopleSoft products. That could have a negative short-term effect on PeopleSoft sales,” said expert Monash.

“And this would not grieve Oracle,” he continued.

“There is -- and will be -- a lot of gamesmanship here,” said Monash. “Even if Oracle fails in the merger, PeopleSoft could be damaged.”

Whether the deal goes through or not, it is likely to have an immediate negative impact on PeopleSoft and its customers, said Betsy Burton, an analyst at Gartner Inc.

Since Oracle’s plan is to migrate PeopleSoft customers to Oracle, the takeover announcement is likely to have a chilling effect on new PeopleSoft sales since customers will be skeptical of purchasing software that may be phased out, analyst Burton said.

Meanwhile, existing PeopleSoft customers are left to wonder where they stand in the hostile takeover battle between the two vendors, Burton added.

Of course, it does appear this chain of events was initiated by PeopleSoft’s move to merge with J.D. Edwards. Observer Monash said that, public protestations to the contrary, PeopleSoft management could eventually prove agreeable to a marriage with Oracle.

And the move could bring a useful infusion of technology into Oracle.

“Oracle has at times shown superb innovation in the use of technology. But the company has always found it difficult to be uniformly at the forefront of application functionality. With the purchase of PeopleSoft, it would be in a better position in terms of application function,” said Monash.

What’s in store for users? In the larger view, this may be a contest of consolidation among software giants. “It’s one huge game of PacMan,” said Tony Baer, president, Demand Strategies.

“Oracle tries to digest PeopleSoft. PeopleSoft tries to digest J.D. Edwards. In the end, if Oracle is successful in buying PeopleSoft, J.D. Edwards could be left on the plate,” he said.

Baer does not think customers are going to like it all. Migrating to the Oracle camp may be a tough trek. “Oracle is not historically customer friendly. It has been improving its behavior, but it has a fierce reputation to live down,” he said.

Like others, Baer also suggested that, as now comprised, even at $5.1 billion -- not far from PeopeSoft’s present market capitalization -- the Oracle offer may not be at an adequate premium over PeopleSoft’s present stock value to succeed.

“If Oracle is serious, it is going to have to go up in price,” Baer said.

With reporting by Rich Seeley

About the Authors

Jack Vaughan is former Editor-at-Large at Application Development Trends magazine.

Rich Seeley is Web Editor for Campus Technology.

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