Takeover Still Looms

PeopleSoft board urging shareholders to reject Oracle bid.

As enterprise IT customers await resolution from Oracle Corp.s hostile takeover bid for enterprise resource planning software developer PeopleSoft Inc., the companies themselves remain steadfastly committed to their positions.

While the fate of the deal is in the hands of PeopleSoft shareholders, Oracle last week mailed them the official tender offer, which expires July 7. PeopleSofts board of directors last week strongly urged shareholders to reject the bid, saying Oracles offer of $16 per share was too low. In addition, they said that such a merger would be held up and likely blocked by federal regulators on the grounds that it violated antitrust laws.

"This process is at an end," PeopleSoft President and CEO Craig Conway said in a briefing last week. "The [PeopleSoft boards] evaluation [of the tender offer] is over, and weve got work to do."

However, Conway said PeopleSoft, of Pleasanton, Calif., is committed to going forward with its acquisition of midmarket enterprise software maker J.D. Edwards & Co., which it announced earlier this month. J.D. Edwards, for its part, filed suit against Oracle and its CEO, Larry Ellison, late last week, asking state courts in Colorado and California to stop Oracles proposed PeopleSoft buyout or force Oracle to pay $1.7 billion.

Despite its assurances, the Oracle offer has PeopleSoft scrambling to calm customers and persuade them not to postpone PeopleSoft purchases. The companys second quarter comes to a close June 30.

"Im not sure if [Oracle is] just trying to take out a competitor or if theyre forcing their solutions onto their existing customers," said Dan Vaught, middleware manager for Safelite Glass Corp., which uses business software from Oracle, Siebel Systems Inc. and Baan Co.

"I dont know if one package can solve industrys needs," said Vaught, in Columbus, Ohio. "Each software vendors package adds value. A lot of people are using PeopleSofts applications because they add value to what theyre doing. Itd be a shame to see that go away."

But not everyone considers an Oracle takeover bad. In fact, Trip Chowdhry, senior software analyst for FTN Midwest Research Securities Corp., said a merger between the two companies makes too much sense to fizzle out.

"Oracle has the best database on the planet, and PeopleSoft has the best applications suite on the planet," said Chowdhry, in Cleveland. "Merging the two will position Oracle-PeopleSoft ahead in both technology as well as customer support, and this combination can win against SAP [AG], Siebel and Microsoft [Corp.]."

Chowdhry said he believes Oracles motivation has nothing to do with PeopleSofts combination with Denver-based J.D. Edwards. To him, it all comes down to fending off Microsoft, which has grown strong from fattening itself on recent acquisitions of business application developers.

Oracles Ellison in a call with analysts last week painted PeopleSoft as a struggling company and J.D. Edwards as worse. He assured PeopleSoft users that if Oracle bought the company, it would support PeopleSoft software.

"We think PeopleSoft customers deserve the right to choose," Ellison said. "They can choose to stay on PeopleSoft 7, they can choose to upgrade to PeopleSoft 8 at no additional charge, or they can choose to migrate to Oracle E-Business Suite, with no licensing fees required."

"Oracle is an organization that is already committed to reinvesting in R&D and consistently bringing product improvements to their client base," added an IT manager at a Midwestern university, who requested anonymity. "This deal makes Oracle even more capable of providing high feature/functionality and a technically rich product set to the market."

With the proposed takeover, Oracle looks to make itself the clear No. 2 enterprise software provider by converting PeopleSofts 6,500 corporate customers to Oracle E-Business Suite.

This is not the first time a combination of Oracle and PeopleSoft applications has been proposed. In June 2002, Conway approached Ellison about selling the Oracle applications to PeopleSoft, but that proposal was dropped shortly thereafter. Ellison "thought there needed to be one code base, and I felt it didnt make sense to [force] 12,000 customers" to change applications, Conway said last week.

Ellison last week said that Conway had not seen the combination of the companies as posing any antitrust concerns a year ago but now does. "Mr. Conway would be running the combined companies in his proposal," Ellison said. "In ours, he would not. Thats the only change."

Oracle executives are meeting with PeopleSoft shareholders to try to win their support. If Oracle does get a majority of the shareholders by July 7, the company could extend the deadline, raise its offer or drop the offer.