The Art of No Deal

Sometimes the best deal is the one you never make.

As the sports adage goes, sometimes the best trade is the one you dont make. Baseball history, for instance, is full of deals that were so lopsided that some teams wish they could have taken them back, such as the Red Sox selling Babe Ruth to the Yankees or the Cubs trading Lou Brock to the Cardinals for Ernie Broglio.

Then there was the alleged proposed trade of Ted Williams for Joe DiMaggio, which, if it had happened, might have reversed the Curse of the Bambino for the Red Sox—but probably not. More than likely, Ted would have helped the Yankees win, and Joe D. would have been just another great ballplayer on a perennial also-ran.

Its no stretch to apply this concept to recent business news. As lawyers this month were fighting over one merger deal that probably should not be made—Oracles bid for PeopleSoft—it came to light that Microsoft and SAP had been in discussions earlier this year to join forces, making the worlds No. 1 and No. 3 software companies into the equivalent of the 1927 Yankees.

The talks fell apart due to expected difficulty in integrating the companies and potential antitrust hassles—the same issues that are now dogging Oracles bid for PeopleSoft.

Microsoft and SAP have been close partners for years, but that does not necessarily mean they would have worked well as one company. Microsoft has a way of totally assimilating the companies it acquires, with all traces of the original company mysteriously disappearing. But SAP would have been hard to swallow, even for Bill Gates & Co. SAPs software, like most large-scale ERP deployments, is hard enough for enterprise IT departments to digest. The combination would have been bad for the companies and bad for customers.

In courting SAP, Microsoft was trying to counterbalance the pending Oracle and PeopleSoft combination and accelerate its enterprise software plans, which currently are built around the small-business solutions of the former Great Plains Software and Navision. Now that the SAP-Microsoft merger is dead, the two are better off continuing a partnership that lets each stick to core competencies. In fact, in the wake of the merger talks disclosure, SAP and Microsoft together announced new integration offerings.

Oracle and PeopleSoft also are better off remaining apart but working together. Oracle should have accepted PeopleSoft CEO Craig Conways offer, made in June 2002, that the two companies integrate their applications businesses—under PeopleSoft. Oracles applications have languished behind SAPs and PeopleSofts for years and seemed to exist only to help sell more Oracle database software. A strong partnership between the two, with Oracle supplying the database and PeopleSoft the applications, would have served the companies and their customers better than the protracted takeover battle, now entering its second year.

One acquisition that did happen recently is ripe for second-guessing. On June 17, Cisco announced a proposed $89 million purchase of intellectual property assets and engineering personnel of Procket Networks to bolster Ciscos high-end router development.

The only problem is, Cisco just last month unveiled its own Carrier Router System-1, or CRS-1, the long-awaited "huge fast router" designed for telcos. This begs the question of why Cisco needed to acquire the similar Procket assets after being so far along the path with CRS-1. And now that Cisco will soon have them, will they complicate rather than enhance the development of CRS-1? The move casts doubt on Ciscos high-end router plans, not to mention Prockets future.

/zimages/2/28571.gifAnalysts say the Procket purchase wont derail Ciscos high-end router plans. Click here to read the full story.

Am I saying that deals should never be made? No, sometimes theyre necessary and good for customers. But I would like to see companies that have neat ideas and good products enjoy a better future than being gobbled up by the giants. Over the past three years, we have seen fewer small-but-growing companies that are able to stand on their own. The big companies, meanwhile, keep getting bigger, thanks in many cases to acquisitions. It would be nice to see some good, old-fashioned organic growth from technology leaders.

Now, about the Atlanta Falcons trading away Brett Favre for a draft pick ...

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Scot Petersen

Scot Petersen

Scot Petersen is a technology analyst at Ziff Brothers Investments, a private investment firm. Prior to joining Ziff Brothers, Scot was the editorial director, Business Applications & Architecture,...