Ellison Is Right

But the PeopleSoft takeover is unlikely to happen.

Its a soap opera, and as such, its a tragedy.

Im talking, of course, about Oracles hostile takeover bid for PeopleSoft, which came on the heels of PeopleSofts bid for J.D. Edwards. Where else this side of afternoon TV can you get CEOs screaming at each other through press releases? PeopleSoft CEO Craig Conway calls Oracles takeover bid "atrocious." J.D. Edwards CEO Bob Dutkowsky says a takeover would stifle competition and limit choice—and, by the way, it might be subject to antitrust litigation. Conway threatens to flood the market with cheap shares—a poison pill that would likely prevent Oracle from buying PeopleSoft. Oracle CEO Larry Ellison, meanwhile, spews out a few barbs that get everyone else to jump in reaction.

While enjoyable for its melodramatic content, the play of egos and hyperbole is almost certain to derail Oracles acquisition—an acquisition that would, for once, make sense.

PeopleSoft and J.D. Edwards have accused Oracle of bad behavior. This is a desperate accusation. Sure, Oracle has aggressive behavior—Larry Ellison reportedly calls his best people "carnivores," but he has generally avoided acquisitions, perhaps naively, through Oracles history. Oracles only large acquisition, that of IRI Software in 1995, went cleanly. Oracle now has that companys Express line of OLAP tools deeply embedded in its architecture.

In stark contrast, PeopleSoft has made many more acquisitions than Oracle. Whats more, PeopleSofts acquisition strategy has always been aimed at aggressive growth rather than at serving customers directly. Think about this: About three years ago, Conway said focusing on R&D and technology was a "suicidal strategy." In other words, building a technology-rich company would be a big mistake. Huh?

Now were seeing Conways chosen strategy emerge with the so-called Total Ownership Experience campaign and the proposed acquisition of J.D. Edwards. TOE purports to be about faster, smoother customer deployments, and yet there is little technical flesh on the marketing bones. Conway had previously completed the acquisition of Red Pepper, for supply chain management technology. Although PeopleSoft just released Supply Chain Planning 8.8, it took the company six years to get supply chain planning right. Another acquisition, that of Vantive, went a little better. Vantive was struggling in the competitive fields of sales force automation and CRM. More accurately, it was getting blown away by Siebel, which had nearly 100 percent growth per year during the heyday of the mid-1990s. That didnt change after the acquisition. PeopleSoft continued to get blown away. Thats when it decided to become marketing-focused. It released the "pure Internet architecture" and hired or promoted some of the smoothest technical talkers in the business. The strategy has worked, leading to a big PeopleSoft rebound.

Although some might fear that Oracle would kill the PeopleSoft product line should its bid be successful, thats unlikely. In general, PeopleSofts products are better than Oracles, especially its HR applications. Its CRM products are better, too, although Oracle has narrowed the gap with Version 11i. PeopleSoft is better focused in the growing midmarket and is better in all the CRM offshoots, notably supplier relationship management. PeopleSoft is also perceived to have better support and is thought to be a nicer company to work with. Oracle tends to move in, drop the price bomb with a database deal, move out and never be heard from again.

Oracle excels with its core database, data mining, middleware, and manufacturing and financial solutions. It also has a larger international presence. The two companies together would be a powerful combination. Rationally speaking, the merger makes sense. But the takeover, as its playing out, has little to do with rational thinking.

Conways poison pill alone is more than enough to halt the buyout in its tracks. More important, PeopleSoft management has instilled in its customers a fear of Oracle. The result is that no one wants this merger to happen, except for Larry Ellison. Its too bad. Because for once, Ellison is right. But being right is not enough when the passions of a soap opera have taken over. As things stand, the takeover isnt going to happen.

John Taschek can be reached at john_taschek@ziffdavis.com.