Oh, Larry!

In January this year, when Larry Ellison declared the impending death of
single-product specialist companies, no one thought he planned to wield the
hatchet himself.

But he has. On June 6, Oracle made a sudden, hostile bid for PeopleSoft, just
four days after PeopleSoft said it was acquiring competitor JD Edwards. On the
weekend before markets closed, Ellison announced–through a press release–that
he would be going to PeopleSoft shareholders with a $16-offer when markets
reopened on Monday. At that price, the acquisition will cost Oracle $5.1 billion
in cash.

"I think Larry saw a wedding, and he showed up with a shotgun because he didn’t get invited. It’s a page straight out of Genghis Khan" Craig Conway, CEO, PeopleSoft

At the time of going to press, the issue was still at a name-calling stage.
In a statement, PeopleSoft CEO Craig Conway said the offer amounted to
"atrociously bad behavior from a company with a history of atrociously bad
behavior. Obviously, it is a transparent attempt to disrupt the acquisition of
JD Edwards by PeopleSoft announced earlier this week".

He has a point.

For one, Oracle has announced that it plans to kill the PeopleSoft brand.
Oracle V-P Finance Jeff Henley said the company does not plan to sell PeopleSoft
products after the acquisition and will instead incorporate its "advanced
features" into Oracle’s e-business application suite. In addition, Henley
said–"We expect minimal business integration risks since we will not be
integrating the product lines… There should be very little disruption to
Oracle employees, as we will not be impacting the organizational structure of
Oracle."

That’s a polite way of saying all jobs and products axed will come from
PeopleSoft’s stable. And if the acquisition does not come through, there’s a
good chance PeopleSoft will be seriously wounded anyway. Ellison’s
announcement on product line discontinuities will most likely immediately close
PeopleSoft’s current order pipeline. All buy or upgrade decisions by customers
are likely to come to a skidding halt till the issue is sorted out.

At a conference call later that evening, with media and analysts all over the
world, Ellison and Henley spoke as if the merger had already come through.
"We are taking some top PeopleSoft developers," Ellison said,
"and moving them on to the Oracle e-business suite team."

Oracle’s promised value proposition to customers–it will increase the
support period for PeopleSoft v7 beyond the promised December 2003 and will
offer an easy upgrade path to the relevant Oracle product.

Buying customers or killing competition?

At this point, it isn’t easy to say what exactly drove the sudden hostile
move. Ellison says PeopleSoft CEO Craig Conway came to him a year ago proposing
a merger of the biz apps division of Oracle with PeopleSoft. A Conway
spokesperson denies that.

Either way, Oracle has been looking for a handle into the business apps
market for a long time and the PeopleSoft-JD Edwards merger would have created a
formidable new opponent. The merged entity’s customer base would have grown to
more than 11,000, increased annual revenue from $1.9 billion to $2.8 billion and
expanded its workforce from about 8,000 to 13,000.

More importantly, there were true synergies in that merger. PeopleSoft is
essentially seen as a human resources software company. JD Edwards has more
credibility in the manufacturing and supply chain area. JD Edwards’ focus has
traditionally been on manufacturing, mining and construction. PeopleSoft catered
to the services sector. JD Edwards was seen as a mid-market product, while
PeopleSoft catered to larger enterprise customers.

In fact, if the JD Edwards merger had come through, the PeopleSoft-JDE
alignment with IBM on one hand and SAP on the other, would have made for a
bruising competitive environment.

Ellison couldn’t have liked that too much.

But nothing is a done deal as yet. At the time of going to press, Oracle had
sent a letter to the PeopleSoft board, offering to discuss the cash tender
(Oracle has $6 billion in savings and bridge financing from Credit Suisse First
Boston). PeopleSoft had advised its shareholders to take no immediate action.
This is early days yet. The action is still ahead of us.

Sarita Rani