The $10.3 billion, $26.60-per-share deal sees Oracle become the-second largest business applications provider and better positioned to challenge market leader SAP AG. It also brings an end to one of the longest and most bitter hostile takeover battles in IT history.
It began on June 6, 2003, when Oracle stunned the market with a $16-per-share, $5.1 billion all-cash unsolicited offer. The move was prompted by PeopleSoft’s own announcement a few days earlier of a friendly merger with JD Edwards.
At that time, Oracle said it had had its eye PeopleSoft for some time but was forced to act when PeopleSoft made its merger move. Oracle sought to prevent the JD Edwards acquisition but was thwarted.
Within days the three companies were engaged in legal skirmishing, with PeopleSoft and JD Edwards accusing Oracle of acting primarily to disrupt their activities. What followed was litany of courtroom battles that included the release of sensitive competitive information.
Disclosures revealed the steep discounts vendors offered to clinch deals, up to 90% of license costs in some cases. It also revealed that SAP and Microsoft has considered merging.
PeopleSoft launched stringent anti-takeover defenses, and vivid and personal insults were tossed between Oracle’s Larry Ellison and PeopleSoft’s Craig Conway, which led to the eventual removal of Conway, which opened the way to the final settlement.
Oracle had so many hurdles to overcome that initially it was thought unlikely that its bid would succeed. Not only was PeopleSoft management vehemently against the offer, forcefully rejecting all offers and declining to enter into negotiations, but also there were antitrust issues.
The US Department of Justice did rule against the merger, only for its decision to be challenged in court and overturned in September 2004. The following month the European Union’s stop-start anti-competitive investigation concluded that there were no grounds for preventing the merger.
At that point the odds tipped in favor of Oracle to the extent that the next court case, which was brought by Oracle to have the anti-takeover defenses removed, became a forum for unofficial negotiations where the real issue was the price.
Prior to the court case Oracle’s bid price had gone from a low of $16 per share to a high of $26. While Oracle threatened to lower the price from the then current $24, PeopleSoft executives indicated that they would consider offers above $26.
When the anti-Oracle Craig Conway was ousted in October 2004, the way was open for negotiations to begin, bolstered by the threat from Oracle to PeopleSoft stockholders that it would withdraw its offer if it did not secure tenders for a majority of PeopleSoft’s shares by November 19.
Then everything fell into place, with Oracle gaining the majority it said it needed then PeopleSoft’s board agreeing to recommend shareholders accept a revised price of $26.50 per share. Conway’s replacement, PeopleSoft founder Dave Duffield, and four members of the board resigned soon after.
The question now is how Oracle will handle the integration. On everything from a cultural to a technical level the two companies are at odds with each other.
The first signs as to how Oracle plans to proceed will come later this week when it will reveal its organizational plans, including staff cuts. It had threatened to lay off half of PeopleSoft employees, but in recent weeks has adopted a different position saying it will keep the best people, whether they come from Oracle or PeopleSoft, and has given indications that the cuts might not be as severe as initially thought.
However, Oracle appears to be putting its own management in place. There are suggestions that Oracle’s John Wookey will take on responsibility for application development for the combined entity. He has been with Oracle for a decade and has solid experience with applications in the financial, ERP, and CRM areas.
Analyst Bruce Richardson of AMR Research cites PeopleSoft staffers who said Wookey is already serving in the role. Oracle will reveal the structure and initial integration plans on January 18.
Because the acquisition was all about gaining critical mass, PeopleSoft’s customer base and $1 billion annual maintenance income are critical factors for Oracle. It is expected to put strenuous efforts into maintaining them, which suggests that large portions of PeopleSoft’s service and support operation could remain.
Similarly, its commitment to develop at least one further version of PeopleSoft Enterprise and Enterprise One before moving on to a product built on a combination of Oracle and PeopleSoft technology bodes well for R&D.
Former JD Edwards staff could take the brunt of the losses as Oracle has only committed to supporting the old JD Edwards i/Series-based product line to the level PeopleSoft would have supported it and has not revealed plans to update it.
The management structure and pattern of job losses will reveal much about Oracle’s future direction but so will its actions regarding PeopleSoft’s partners, particularly IBM, which had been mooted as a white knight for PeopleSoft.
PeopleSoft is IBM’s leading reseller and the two entered into an extensive five-year joint development agreement shortly before Conway’s expulsion. Given the commercial rivalry between Oracle and IBM, Oracle is expected to extract itself from the contract leaving IBM with a major problem, which could have wider repercussions in terms of market share breakdown in the database and integration sectors.
Then there is BEA Systems whose old Tuxedo technology forms a critical part of PeopleSoft Enterprise line. PeopleSoft is believed to pay around $6 million to $10 million annually for the technology. Although BEA is an Oracle competitor, Oracle cannot immediately cut the technology out so potentially BEA may be able to strengthen its weak position by pushing for increased fees.
As far as PeopleSoft customers are concerned, they are assured of long-term support for existing versions, until 2013 at least, and are promised at least one more new version which provides a much-needed period in which to evaluate Oracle’s performance and decide whether its technology direction is one they can follow.
New versions of Enterprise and Enterprise One are anticipated in about 18 months according to Oracle, and a joint product is loosely scheduled for 36 months from now that Oracle said will combine the best features and functionality from both companies’ products, deployed on a modern, standards-based architecture. As a consequence, customers have a minimum of three years to determine their future strategy.
However, the 36-month timeline looks overly optimistic however, when the size, complexity and architectural differences of the product lines involved are considered. Nevertheless, having put buying decisions on hold for the last 18 months the deal does mean some decisions can be now be made.
