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    Home Applications
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    Oracle Must Build a Future Without PeopleSoft

    By
    John Pallatto
    -
    February 4, 2004
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      It appears increasingly unlikely that Oracle will succeed in its hostile takeover of PeopleSoft, even if it gets the green light from government regulators in the U.S. and Europe.

      Thats because it is now highly doubtful that Oracle will be able to persuade anywhere near a majority of stockholders to toss out the current PeopleSoft board of directors in favor of Oracles nominees.

      One sign that PeopleSoft senior managers are confident that the company will fend off the hostile takeover is that it has pushed up the annual meeting to March 25 from its usual date in May. This move makes sense if management believes shareholders will reject the Oracle bid because an early vote means the company can get the Oracle monkey off its back that much sooner.

      The move also means PeopleSoft is not counting on the Justice Department to come to its rescue by blocking the buyout on the grounds that it would illegally curtail competition in the software industry. The Justice Department has indicated that it should be ready to report its decision sometime this or next month.

      Another factor is that PeopleSoft common stock has been hovering between $21 and $22 per share, well above Oracles $19.50-per-share bid for the company. As a result, Oracle has been forced to increase its bid to $26 per share, showing that it is prepared to spend whatever it takes to win over shareholders.

      While Oracle can certainly afford to offer this higher price for the stock, it still may not be enough to win over shareholders if they place an even higher value on PeopleSoft as an independent company. They dont necessarily need to look to Oracle to gain a premium on their PeopleSoft investment. However, the market has shown time and again that if the offer is high enough, investors will trade away independence for a fat profit.

      Next page: Should Oracle admit defeat?

      Page Two

      If Oracle wanted to show itself both wise and gracious it would admit defeat, withdraw its bid for PeopleSoft and allow both companies to continue on their separate paths.

      Its also certain that, after weighing their chances, Oracle executives know that it has only the slimmest of chances to succeed in the proxy fight. Oracle is simply going through the legal motions to continue to reap whatever competitive advantages accrue by prolonging the uncertainty and distracting PeopleSoft from total focus on its business development strategy.

      But its time for Oracle to start thinking about what it must do to remain competitive when stockholders vote to reject the hostile takeover. The merger of PeopleSoft and J.D. Edwards dropped Oracle from second to third on the list of the largest independent software vendors—not a desirable position for a company that aspires to be No.1.

      If it ultimately fails to acquire PeopleSoft, Oracle still faces the same key problem that it confronted before making the takeover bid eight months ago: how to keep growing the business at a time when relational database sales are unlikely to grow at the rate they did in the 90s.

      While long a leader in the database field, Oracle hasnt been able to reach the top as an enterprise applications vendor. As a result, the company had been counting on the acquisition of the PeopleSoft/J.D. Edwards enterprise applications business to reach that goal.

      If its bid fails, Oracle either has to cast about for a new acquisition target or try to play catch up to PeopleSoft by building up its existing applications product line. The company might cast looks at Computer Associates, SAP or Siebel Systems, but there doesnt seem to be any other major enterprise application software players that would offer as complementary a set of products as PeopleSoft offers.

      Next page: Time to focus on current line.

      Page Two

      The best that Oracle can do in this situation is focus hard on boosting the capabilities of its current product line. There were some hints given at Oracles AppsWorld 2004 conference that it is already turning in this direction.

      Oracle CEO Larry Ellison noted that that the new version 11i.10 of its E-Business Suite due for release at midyear will support integration with third-party enterprise applications, a feature that was markedly lacking in earlier versions. Oracle also announced the Customer Data Hub, which allows enterprises to create a central data store that integrates data from multiple sources including third-party applications.

      This departure from its long-standing Oracle-only support policy for its applications line is long overdue. Its an approach that if implemented years ago might have given Oracle applications a more dominant market presence.

      But it now has to be an essential element in future business strategy if Oracle finds it cant revamp its product line overnight by buying out PeopleSoft or some other enterprise applications company.

      This approach is superior even to the alternative of simply waiting until some future point in the business cycle when PeopleSoft might seem vulnerable to a new takeover bid.

      eWEEK.com Enterprise Applications Center Editor John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. Be sure to check out eWEEK.coms Enterprise Applications Center at http://EnterpriseApps.eweek.com for the latest Enterprise Applications news, views and analysis.

      Avatar
      John Pallatto
      John Pallatto has been editor in chief of QuinStreet Inc.'s eWEEK.com since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and computer technology trade journals. He was an eWEEK managing editor from 2009 to 2012. From 2003 to 2007 he covered Enterprise Application Software for eWEEK. From June 2007 to 2008 he was eWEEK’s West Coast news editor. Pallatto was a member of the staff that launched PC Week in March 1984. From 1992 to 1996 he was PC Week’s West Coast Bureau chief. From 1996 to 1998 he was a senior editor with Ziff-Davis Internet Computing Magazine. From 2000 to 2002 Pallatto was West Coast bureau chief with Internet World Magazine. His professional journalism career started at the Hartford Courant daily newspaper where he worked from 1974 to 1983.

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