Oracle Clears the Conway Hurdle

By Lisa Vaas  |  Posted 2004-10-01

Oracle Clears the Conway Hurdle

With PeopleSoft CEO Craig Conway canned, Oracle has cleared one of its biggest hurdles to acquiring his former employer, some experts believe.

Conway was ousted Friday morning from his post as PeopleSoft Inc.s CEO, following 15 arduous and not particularly successful months of attempting to fight off Oracle Corp.s hostile takeover attempt, to retain customers and to keep PeopleSofts stock from tumbling.

PeopleSofts founder and chairman, Dave Duffield, was moved into the CEO position that he ceded to Conway 10 years ago—a retrenching that could be a last-ditch effort to fend off the hostile takeover.

Read more here about the PeopleSoft boards decision to fire Conway, citing "a loss of confidence."

But some experts said that having the admittedly beloved Duffield back in the saddle is irrelevant to the success or failure of Oracles acquisition, in comparison with the importance of getting Conway out of the way.

"We think it significantly increases the probability that Oracle will be successful," said Ken Marlin, a managing partner at Marlin & Associates, a New York mergers and acquisitions law firm focused on media and technology. "Its less important who took over. The most important thing is Conway is not there."

Indeed, Conway was, in some ways, a single-man dam that kept Oracle from washing over PeopleSoft. Over the past 15 months, Conway has done everything in his power to keep PeopleSofts board of directors from sitting down to negotiate a deal with Oracle.

"Craig Conway convinced his board of directors of two things: one, that Oracle was the evil empire, and, more importantly from a board perspective, he convinced them the price being offered by Oracle was inadequate," Marlin said.

Oracles initial offering price was $19.50 per share. It bounced around over the course of the past 15 months, rising to a high of $26 per share. As PeopleSofts stock steadily crumbled, Oracle in May chopped its offering price down to $21 per share.

In cold, hard cash, that meant that Conways deep antipathy toward his former boss, Oracle CEO Larry Ellison, cost PeopleSoft shareholders some $2 billion.

"His rationale … was to let the current managers and team run the company, that he would get growth that would drive the stock price higher than what Oracle was offering," Marlin said. "The problem is that that is not happening. In the process, he cost shareholders $2 billion, because Oracle has lowered its offering price."

To read about a $1 billion, multiyear partnership recently formed between PeopleSoft and IBM, click here.

Paul Friedman, an antitrust expert and partner in the Washington law firm of Dechert LLP, agreed that Conways dismissal is closely intertwined with PeopleSofts poor market position. "Where it really comes into play is, how effective was Conway in protecting and improving PeopleSofts market position in the face of the uncertainty that was created by the tender offer and the litigation?" Friedman said.

"I think the point is right—that the board has to be concerned about how well did management lead the company so that sales would meet projections, profits would meet projections, customers would be retained and shareholder value would be where it needs to be. Theyre all interconnected, but I think the fallout has more to do with failure to deliver effectively in the marketplace."

Next Page: A renewed focus on customers needs?

Customer Needs

Since Oracle first made its offer, PeopleSofts board of directors has refused to sit down and negotiate. Conways dismissal may mean that this hard-line attitude is changing and that the board is revising its internal estimates of where it believes PeopleSofts stock price could be in the coming year or two, based on internal forecasts.

The logical thing for PeopleSofts board to do next, according to Marlin, is to sit down with Oracle and try to negotiate a price that exceeds the boards internal evaluation.

That process usually takes weeks or months. Of course, PeopleSofts board may have already done such an internal evaluation, and Conways demise may well be the result of that evaluation. "They might have done it by now, for all we know, and that might have prompted their [dismissal of Conway]," Marlin said.

Meanwhile, Duffields return to leading the company he founded signals that the level of customer unhappiness under Craig Conways 10-year tenure was so profound, it forced the company to return to the good old days when customers were PeopleSofts top priority, some believe.

"The level of customer dissatisfaction came to the point when Dave Duffield felt he had to step in and bring it back to the original philosophy," said Paul Hamerman, a vice president of Forrester Research Inc., in Cambridge, Mass.

Click here to read about a recent earnings report from PeopleSoft.

Before he turned over the reins to Conway, Duffield was famously people-oriented, a bear-hugger and a listener, a "people person" who obviously cared. Under the guidance of the stiffer Conway, customers grew alienated, particularly after a series of customer-unfriendly moves.

One notable misstep was steep maintenance pricing increases, Hamerman said. "He relentlessly raised prices on maintenance," he said. "He was too aggressive there. He did that to replace declining license revenues, to keep the [companys revenues up]."

Users have also complained to Forrester analysts about a scarcity of technical foresight at PeopleSoft. "Weve been critical on PeopleSoft [for a] lack of technical vision," Hamerman said. "Especially since the [J.D. Edwards & Co.] acquisition and [the Oracle] tender offer came about, we havent seen any good indications of technical innovation coming out of PeopleSoft, [whereas arch competitor] SAP [AG] has been very active in that area."

If Duffield stands any chance of rebuffing Oracles takeover, hell have to shore up customer confidence and regain customer trust, Hamerman said. "His first moves should be to try to rebuild customer confidence in the company. He should explain the companys technology vision, in some detail, to create more excitement around the products and technology."

Beyond that, Duffield must repair the damage done to customers freedom of choice. "He should offer the customers more choices in how they want to consume maintenance services," Hamerman said. "Basically, not have an all-or-nothing deal, but break out what they want and need. Maybe they dont need enhancements, just compliance updates, technology support and so on."

Or, Marlin said, maybe its just time for Duffield to sit down and negotiate with Oracle. "[PeopleSoft has] been unwilling to sit down with Oracle, since Conway hates Larry Ellison," he said—one of multiple hurdles that Oracle has now leapt.

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