Customers Slam Oracle Takeover Bid

Oracle Corp.s hostile takeover bid for PeopleSoft Inc., announced this morning, is already meeting resistance from customers of both companies.

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

While that may please some shareholders, customers feel theyre being left out in the cold.

“We would not want to see Oracle acquire PeopleSoft,” said Al Jones, IT business systems manager at Environmental Systems Products (ESP) 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.”

Cox did say such an acquisition could be a boon for application integration, but thats about the only benefit she sees.

Ironically, Environmental Systems Products chose PeopleSoft over Oracle and J.D. Edwards last December for a systemwide ERP migration from a legacy platform and CRM (customer relationship management) deployment.

“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.”

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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 is 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,” said Jones.

Nigel Montgomery, European research director at AMR Research, said many PeopleSoft customers would have to re-evaluate their ERP investments if the deal went through. “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 would sit idly by while the combined PeopleSoft-J.D. Edwards leapfrogged Oracle in market share. He doubts Oracle can pull it off though, noting that the Redwood Shores, Calif.-based 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. Oracles current bid would eat up $5.1 billion of Oracles $5.5 billion cash horde, Montgomery noted.

He said instead the move was likely made to force PeopleSoft to empty its own cash reserves since PeopleSoft may have to close the J.D. Edwards deal sooner to stave off Oracles takeover. A cash acquisition would close faster than a stock acquisition, which PeopleSoft originally proposed, Montgomery explained.

“Then PeopleSoft for the rest of the year wouldnt have enough cash to do anything,” Montgomery said. “On the face of it, its a sensible move by Oracle. But the ones who lose out are the PeopleSoft customers. At the end of the day its a horrible deal for them.”´