Industry analysts and commentators may have been too quick to jump to conclusions when they claimed that PeopleSofts decision to fire CEO Craig Conway is a sign that the company is preparing to come to terms with Oracles buyout bid.
That is certainly a fair assessment considering that under Conways leadership, PeopleSoft has managed to ensnare itself in a trap that may prove impossible to escape from.
But an equally plausible scenario is that the board replaced Conway with PeopleSoft founder and chairman Dave Duffield as the beleaguered companys last, best chance to restore customer and shareholder confidence.
To survive, PeopleSofts sales and revenue have to start growing again—quickly, strongly and consistently. All of the lawsuits and related legal maneuvers wont keep PeopleSoft Inc. out of Oracle Corp.s hands if it cant prove it will deliver shareholder value as an independent company.
More than 18 months ago, Conway started courting merger partners as a way to ensure that the companys enterprise applications technology would survive and prosper in a maturing market. Conways first mistake was to broach the subject with Larry Ellison and Oracle Corp.
When youre playing for high stakes with Ellison, the last thing you want to do is let him see your cards before you win the pot. Conway, a former Oracle executive, made his pitch for a deal with Oracle in which he and his companys software would retain a prominent role in the new organization.
When Conway couldnt reach an agreement to his advantage, he tried to walk away. All Oracle had to know was that Conway was putting PeopleSoft into play. That was enough to turn Oracle an implacable suitor.
Instead, PeopleSoft turned to J.D. Edwards & Co. to make a deal. This allowed PeopleSoft to add to its customer base and to acquire software that filled some gaps in its enterprise applications suite, particularly products that serve manufacturing industries. Better yet, this deal would ensure that PeopleSoft would remain the senior partner.
Now, PeopleSoft finds itself in a far worse situation than if it hadnt tried to make any deal at all. Oracle is aiming to acquire the combined companies, negating whatever assurances PeopleSoft made to J.D. Edwards employees and customers—as well as to its own—about what the future holds for them.
Conway Overplays IBM Deal
Besides the millions of dollars PeopleSoft has had to spend fending off Oracle, the company has seen its sales and revenue drop as customers stand aloof from making major new purchases until they find out whether the Oracle bid will succeed.
It is significant that Conways firing came barely a week after PeopleSofts annual user conference in San Francisco. Conway may very well have sealed his fate at that conference.
It could very well have been because Conway exaggerated the significance of a software-development alliance with IBM, estimating that the two companies would spend a total of $1 billion to integrate PeopleSoft applications with IBMs WebSphere middleware. It was Conway who voiced the $1 billion estimate. That figure wasnt specifically confirmed or endorsed by IBM executives.
They tried to stress that such an estimate did not represent cash investments by either company, but mainly the commitment of developer resources to integrate PeopleSoft applications with WebSphere. Whether the total expenditure would eventually amount to anything near $1 billion over the life of the alliance, IBM officials wouldnt say.
They didnt deny that the alliance was big deal, but they also tried to prompt analysts to keep it in perspective: IBM has alliances with hundreds of companies, including PeopleSoft arch-rival SAP AG.
The alliance raised speculation that IBM was standing in the background prepared to make a direct investment or perhaps acquire PeopleSoft as an alternative to Oracles $7.7 billion takeover bid. Talk of IBM as a potential “white knight” kept percolating, even though such an acquisition would fly in the face of IBMs steadfast policy of staying out of the software applications business. Such talk continued even as IBM executives repeatedly stated that the company had no interest in getting into the applications business.
PeopleSoft wanted its customers to leave the user conference ready to buy PeopleSoft applications—with the confidence that it would fight hard to stay independent. Instead, the IBM announcement only further muddied the water. Customers had to wonder whether PeopleSoft was serious about staying independent if it was even tacitly encouraging far-fetched speculation of an IBM buyout.
This very likely was the last straw for Duffield and for the PeopleSoft board. They decided that Duffields return as CEO was the last, best chance to win the battle with Oracle. But the company still has to play out the muddled hand dealt it by Conway.
In any event, dont look for Duffield to meekly beg Ellison for generous terms. Look for him to get out on the road to talk to PeopleSoft customers—and to try to convince them that the company still has the wherewithal to fend off Oracle and profitably market its software.
Its hard to believe that Duffield is ready to give up on the company he founded nearly 18 years ago. If he is willing to keep fighting the good fight, Duffield may prove to be PeopleSofts only viable white knight.