Oracle’s win/win ploy

by john on June 6, 2003

This morning Oracle shocked Wall Street by announcing it intends to launch an unsolicited $5.1 billion tender offer of rival PeopleSoft. The announcement comes on the heels of a similarly surprising bid earlier in the week by PeopleSoft of J.D. Edwards, a deal that was roundly touted as strengthening PeopleSoft against rival Oracle. The tender offer was at a paltry 6% premium from the previous market close – PeopleSoft shares responded by gaining 17% on the day.

The audacity of Larry Ellison, Chairman and Chief Executive of Oracle, to make this offer is quite stunning but the timing couldn’t be better and the result is a win/win situation for Oracle.

Just by the simple act of making this announcement Oracle has introduced FUD (Fear, Uncertainty and Doubt) into the minds of Enterprise software buyers around the world. Anyone who is currently negotiating with PeopleSoft or evaluating their software will naturally slow down or even stop. Why waste the time if Oracle buys PeopleSoft next month and immediately sunsets the products as Ellison has said they would? June is the last month of the second quarter for PeopleSoft and in this market the last few weeks of a quarter are critical. PeopleSoft has had some license revenue weakness recently but as the market and economy seem to be turning around a bit it would not be surprising to hear they have a full pipeline for the quarter. Not any more; gentleman get ready to start using the word “deferred.”

Even worse for PeopleSoft this now puts their company as a takeover target in people’s minds. Many buyers of this sort of software are asked to go with the big dogs for protection against this very thing. Nobody wants to invest in a company only to have it get bought and devastated out from under them. Therefore companies like Oracle, Siebel, SAP and PeopleSoft tend to make the short lists on that fact alone. This announcement is a wake up call to remind buyers that PeopleSoft’s future is not secure – and that will scare buyers away.

Even if the deal doesn’t get done Oracle wins because they have mortally wounded a key competitor by freezing their pipeline and removing a key rival from some future competitive situations.

If the deal does get done Oracle becomes an even stronger player no matter how they incorporate PeopleSoft. I find it hard to believe Oracle would not leverage a lot of PeopleSoft’s applications – the applications side of Oracle tends to get a bad rap and PeopleSoft has some very good and maturing products. They’ve also got a terrific application development environment.

Additionally the combined power of Oracle and PeopleSoft may give them a leg up on Siebel, a company who for me would make more sense to be making moves on PeopleSoft as it would get them into the full front and back office suite where they do not currently have an offering. But Oracle has eight times as much cash in the bank as Siebel so I don’t see it happening.

Deal or no it’s a win for Oracle.

But is it a win for the consumer? I don’t think so, and I don’t think the deal will happen for that and other reasons. PeopleSoft has a strong offering, many people believe stronger than Oracle, certainly in CRM and HR. Oracle has a strong offering, especially in financials. The choice of one over the other is a good thing. Allowing Oracle to remove one of the only other vendors providing decent front and back office applications is not good for anyone but Oracle.

This is the classic definition of a hostile takeover. Check out some of the responses from the CEO of PeopleSoft, Craig Conway:

“It was like Larry was driving by, spotted a really nice wedding in progress, crashed it with a shotgun and said, ‘This bride’s going to marry me at the end of a barrel,”‘ PeopleSoft CEO Craig Conway said in a telephone interview from London.

“It’s a pathetic tactic even by Oracle standards,” said Conway

Oracle is demonstrating “atrociously bad behavior from a company with a history of atrociously bad behavior,” Conway said in a press release.

Rumor has it Tom Siebel bought Scopus because Scopus was going to win a head to head deal with Siebel and he couldn’t stand to see it happen. Siebel learned under Ellison – it wouldn’t surprise me in the least if that was the case here.

I think the whole matter stinks if Ellison is playing a game. If he is serious about the offer and makes it happen it will be a shame what would happen to PeopleSoft – in that clash of corporate cultures there is no question the PeopleSoft employees, and ultimately customers and prospects, would lose.

It’s a funny business.

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