Oracle Pulls PeopleSoft Shocker

By Dennis Callaghan  |  Posted 2003-06-09

Oracle Pulls PeopleSoft Shocker

Capping a week of consolidation in the enterprise applications space, Oracle Corp. announced Friday a $5.1 billion cash tender offer for PeopleSoft Inc., a move analysts and customers rejected as competitive gamesmanship.

The proposed takeover, coupled with PeopleSofts planned acquisition of J.D. Edwards & Co. announced earlier in the week, would create a $5.5 billion business and capture 27 percent of ERP (enterprise resource planning) market share. That would be second only to SAP AG, which has $7.4 billion in ERP revenues and 36 percent market share, according to numbers released last week by AMR Research Inc., of Boston.

In a statement issued Friday afternoon, PeopleSoft President and CEO Craig Conway described Oracles offer as "atrociously bad behavior from a company with a history of atrociously bad behavior. Obviously it is a transparent attempt to disrupt the acquisition of J.D. Edwards by PeopleSoft announced earlier this week." The company and its board of directors will review the offer as required by law and will provide a definitive recommendation to shareholders shortly thereafter, the statement said.

Oracles swallowing up PeopleSoft may please shareholders but likely would not be welcomed by many PeopleSoft customers. "We would not want to see Oracle acquire PeopleSoft," said Al Jones, IT business systems manager at Environmental Systems Products Holdings Inc., in East Granby, Conn. "There needs to be competition to drive real innovations and new product directions. Having a couple of big players consolidating the market would not be good."

Kelly Cox, an Oracle database administrator who owns a small consultancy in Alexandria, Va., had a similar view. "If Oracle bought [PeopleSoft and, by default, J.D. Edwards] and intends to merge the tools, Id think that would be a disservice. It reduces competition in that market. I think competition is healthy, and a lot of people feel that way."

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ESP chose PeopleSoft over Oracle and J.D. Edwards just last December for a systemwide ERP and CRM (customer relationship management) migration from a legacy platform. "We thought the culture of [PeopleSoft] was a way better fit with ours," said Jones. "They had a track record of listening to and working with customers to make sure the customers needs were met. We didnt get that sense from Oracle. It was one of the telling things."

Jones said PeopleSofts planned acquisition of J.D. Edwards makes sense to him, since PeopleSoft would get J.D. Edwards manufacturing software expertise and J.D. Edwards could take advantage of what he said was PeopleSofts superior technology infrastructure. He sees little benefit from Oracle buying PeopleSoft.

"Im by no means a market expert, but my guess is its gamesmanship," said Jones. "At least I certainly hope so. I dont want to see Oracle acquire PeopleSoft. I wouldnt want to see the Oracle structure imposed on PeopleSoft." And if the acquisition does go through? "It would make us re-evaluate our long-term arrangements," he said.

Nigel Montgomery, an analyst at AMR Research, said many PeopleSoft customers would have to re-evaluate their ERP investments if the acquisition is approved by shareholders and regulators.

"The only people happy here are SAP," said Montgomery, in London. "All of PeopleSofts customer base would be going back on the market."

Montgomery said he didnt expect Oracle Chairman and CEO Larry Ellison to sit idly by while the combined PeopleSoft-J.D. Edwards leapfrogged Oracle in market share. He said he doubts Oracle can pull it off, though, noting that the Redwood Shores, Calif., company would likely have to offer between $23 and $25 a share to make the deal palatable to PeopleSoft shareholders, rather than the opening bid of $16 per share.

Montgomery said that the move, instead, was likely made to force PeopleSoft to empty its cash reserves since PeopleSoft may have to close the J.D. Edwards deal sooner to stave off Oracles takeover.

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Even before the Oracle shocker, ERP software customers large and small found themselves suddenly taking stock of existing infrastructures. They also were trying to forecast the future in light of PeopleSoft-J.D. Edwards and the news that an investor group announced it is buying enterprise software developer and erstwhile Oracle competitor Baan from Invensys plc. for $135 million. Cerberus Capital Management LP and General Atlantic Partners LLC plans to combine Baan with another ERP maker, SSA Global Technologies Inc. to create a $600 million company.

Enterprise IT customers are taking a cautious approach. The dilemma: Customers that stick with PeopleSoft or Baan could get early access to a range of new software capabilities. But they do so at the risk of disruptions to their principal technology providers business by integration challenges and distractions.

"Customers have options these days, and [PeopleSoft and J.D. Edwards] cannot afford to lose any of their customer base," said Irving Tyler, CIO of Quaker Chemical Corp. The Conshohocken, Pa., company recently standardized on J.D. Edwards for its back-office applications. "I am optimistic that they can leverage the strengths of the two companies in a way that will drive benefit for their customers. [But] they really have to focus on this."

Though the J.D. Edwards buyout is in doubt now, it would present obvious opportunities for enterprise customers. Users that were once attracted to features unique to the Denver-based J.D. Edwards software but reluctant to commit because of the companys relatively small size will now have the backing of a large company.

According to PeopleSoft officials, in Pleasanton, Calif., the company plans to tightly integrate its services-oriented enterprise software, which has an emphasis on human resources management, with J.D. Edwards applications. The broader offerings will be knit together using PeopleSofts Integration Broker technology, said Conway.

The two companies applications "will integrate way better [than they do now]," Conway told eWEEK. But even if the company winds up supporting two or three architectures, "we will maintain the customers investment. You should expect a steady, continuous stream of enhanced capability that starts to cross-pollinate within months" of the closing of the deal, he said.

As a proof point, Conway referred to his companys acquisition and integration four years ago of Vantive Corp., a CRM developer. Over time, PeopleSoft integrated the software with its Internet architecture. But pulling off such integration efforts is not as straightforward as it sounds.

Dan Donshik, who has worked as a consultant with PeopleSoft and J.D. Edwards technologies over the past decade, called the two architectures "dramatically different."

"We looked for cross-synergies [between PeopleSoft and J.D. Edwards], but it was very difficult," said Donshik, executive vice president at Rollcage Technology Inc., in Simsbury, Conn. "J.D. Edwards is steeped in the AS/400, which is something PeopleSoft will have to contend with." Nevertheless, Donshik said he sees good things coming out of the merger.

Electronic Theatre Controls Inc. was a Vantive customer when PeopleSoft bought that company. Tracy Wundrock, director of IS at the Middleton, Wis., lighting company, said ETC had the typical concerns about having to change to a new companys software at the time. But in the end, Wundrock said, PeopleSoft made Vantives software better by making it Web-based and adding new process and workflow capabilities.

"Im completely satisfied with everything Ive seen PeopleSoft do," Wundrock said. "After they picked up the Vantive customer base, they didnt cut off support; they provided a lot of transition information. They were concerned about the continuity of our business. They dont want to just rip and replace the software."

Additional reporting by Lisa Vaas

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