Forget PeopleSofts Customers, Its All About the Money

By John Pallatto  |  Posted 2003-11-26

Forget PeopleSofts Customers, Its All About the Money

When a company is the target of a hostile corporate takeover, what its customers, employees or even management think doesnt matter much. Money talks.

Right now there is $7.3 billion on the table saying very loudly that it wants to give Oracle the right to dismantle and absorb not one, but two companies, PeopleSoft and J.D. Edwards.

While the financial transactions are complete, PeopleSoft is still in the throes of integrating J.D. Edwards technology and culture into a single organization selling a coherent line of enterprise resource management software. Turning two companies into one is never easy. A lot of good luck and inspired management might actually produce a stronger single company that is able to provide quality service to customers while gaining improved prospects for survival in a competitive market.

Then along comes Oracle, which is determined to buy out the combined companies whether or not PeopleSofts senior management and board of directors like the idea.

Oracle in fact is so determined to take over PeopleSoft that it is willing to wage a proxy fight in hopes of convincing a majority of shareholders to throw out the current board and elect new directors friendly to the buyout proposal. And it continues to chase after PeopleSoft even though business regulators on two continents are reviewing whether the takeover would be anti-competitive, although Oracle says it can satisfy regulators that it wont violate antitrust laws.

Click here for some diametrically opposed thoughts on the Oracle-PeopleSoft saga.

So far there has been no detailed public discussion of how this takeover will impact current or future users of PeopleSoft ERP software. Thats because the customers simply dont fit into the equation. Its all a matter of whether shareholders like Oracles offer well enough to kiss PeopleSoft goodbye as an independent company. Customers can only hope that they will still be able to use PeopleSoft and J.D. Edwards software profitably regardless of whose logo is printed on the service agreements.

Next page: Buying fear, uncertainty and doubt.

Page Two

But the real truth of the matter is an offer of $7.3 billion can do a lot more than just buy a pretty big software company in Northern California. It can also buy a lot of fear, uncertainty and doubt. Either way, Oracle wins.

If it succeeds, Oracle gets to sort through the various pieces of PeopleSoft and J.D. Edwards. It can add the most valuable chunks to its own product line and throw the rest in the trash bin. Lots of people will lose their jobs. Ousted PeopleSoft senior managers who owned big blocks of founders stock can either plan early trips to retirement homes in Hawaii or look for new ventures to invest in.

In the meantime, customers will wonder whom they should call to find out whether the ERP modules they are using actually have an upgrade path or whether they are going to have to come up with more money to pay for a future Oracle logo product. Doubtless any such product will contain more than a little code with a lineage that leads back to Pleasanton, Calif., and Denver.

The proxy fight, legal challenges and regulatory reviews will go on for months. Even if Oracle ultimately fails in its takeover bid, it will have gained at least a temporary competitive advantage by delaying and possibly permanently deranging the effective integration of PeopleSoft and J.D. Edwards.

But there is no doubt that PeopleSoft, either alone or in combination with J.D. Edwards, is an irresistible target. Relatively few independent software companies besides Oracle have the financial strength to pull off such an acquisition right now.

Oracle is quite conscious of the market reality that future sales of database software alone are unlikely to boom as they did in the 80s and 90s. Sales of enterprise software that adds value to existing database installations will be the source of future revenue growth. Thats what PeopleSoft and J.D. Edwards can provide.

Thus PeopleSoft is well worth $7.3 billion to Oracle, especially if the buyout can circumvent the development of a robust competitor that can make it difficult for Oracle to dominate the most lucrative markets.

Consolidation is inevitable in all technology markets. No company is immune to these forces. Although there is no question that the ERP market is ripe for consolidation, no company should be dragooned into a hostile takeover by the brute force of money.

PeopleSoft doesnt deserve to be extinguished from the market based solely on the hard-eyed calculations of shareholders. But thats exactly what could happen.

The potential value to customers as well as shareholders of an independent PeopleSoft has to be carefully weighed before Oracle gets the chance to consign the company to the corporate knackers yard. Enterprise Applications Center Editor John Pallatto is a veteran journalist in the field of enterprise software and Internet technology.

Discuss This in the eWEEK Forum

Rocket Fuel