Analysts Address Oracle's Move to Buy PeopleSoft

In what some analysts suspect is an attempt to put the kibosh on PeopleSoft's intention to buy J.D. Edwards, Oracle today announced a cash tender offer to purchase all outstanding shares of PeopleSoft for $5.1 billion, or $16 per share. The announcement comes just days after PeopleSoft offered to buy J.D. Edwards in a stock-for-stock deal valued at $1.7 billion. "If Oracle really wanted PeopleSoft that badly, Ellison would've offered more money. It is quite possibly Oracle's intention is to screw up the J.D. Edwards deal," Chris Selland, managing director and founder of Reservoir Partners. Oracle's offer represents a mere 5.9 percent increase over yesterday's close of $15.11 a share for PeopleSoft's stock. PeopleSoft's stock has already jumped to more than $18 a share as a result of the news. "The acquisition of PeopleSoft will immediately make Oracle an even more profitable and competitive company," Oracle Chairman and CEO Larry Ellison said in a prepared statement. "Although we will not be actively selling PeopleSoft products to new customers, we will provide enhanced support for all PeopleSoft products. Furthermore, we will be incorporating the advanced features from the PeopleSoft products into future versions of the Oracle eBusiness Suite." The reason for the deal, according to Yankee Group analyst Sheryl Kingstone, is mind share, which she says Oracle lacks in the front-office market. Other industry pundits agree: "Oracle would gain PeopleSoft's strength in human resources, accounting, and sales automation," says Bob Blumstein, research director at IDC. "Ever since [former Oracle exec] Ray Lane had his power struggle with Ellison, Oracle has lost ground in CRM and ERP applications. Additionally, Microsoft is climbing fast, so Oracle had to do something," Selland says. Commenting on the low-ball offer, Kingstone says, "It's a joke." But the deal makes sense for the industry and PeopleSoft customers, she says. "At first I thought this was just Larry [Ellison] acting like a little toddler in a sandbox throwing sand in Conway's face, but he's serious," she says. If the deal goes through, the move could benefit PeopleSoft customers, some analysts say. Kingstone says PeopleSoft's roughly 5,000 customers, especially those who haven't migrated from PeopleSoft 7.0 to version 8.0, would benefit from a smoother migration path. "The acquisition would give PeopleSoft customers a smooth upgrade path to Oracle, whereas PeopleSoft is forcing a move [from version 7.0 to 8.0] anyway, which is turning out to be painful for customers," Kingstone says. Upgrading to Oracle instead of PeopleSoft 8.0 would be smoother and more beneficial for PeopleSoft customers in the long run, Kingstone says, because Oracle would have the entire IT stack from the database to the application layer, including the application server and the applications. Having the complete information stack is critical, Kingstone maintains, because most companies are going to the edge of the enterprise with customer-and partner-facing applications that need to be more open and compliant with a lot of the industry standards. "That's where the infrastructure matters," she says. What does this do for the competitive landscape? Kingstone says this will make it "a two-horse race" between Oracle and SAP AG, which already has the application layer and is building out the infrastructure layer, she says. But bringing applications together with the infrastructure does not come without problems, according to Reservoir Partners' Selland. "The infrastructure companies make most of their money partnering with application companies. PeopleSoft doesn't have a database, but you need one to use PeopleSoft software. BEA is another example of an infrastructure company that makes most of its money through application partners. If BEA were to acquire an application company, it screws up those partnerships," Selland says. Where does this leave Siebel, which recently reported a 90 percent drop in year-over-year earnings? Some analysts say Siebel is primed for a takeover. Earlier this week Siebel acquired BoldFish's assets to integrate its outbound messaging products into the latest release of Siebel Marketing; however, analysts are not impressed. "Siebel is buying little companies like BoldFish. Who cares? Siebel can build that. Why buy it?" Kingstone asks. "Tom Siebel talks about applications used to forecast the future and he can't even see his own future." Although mergers and acquisitions are typically full of hurdles, IDC's Blumstein maintains that the acquisition could bode well for PeopleSoft and Oracle customers in the long run. "There's no guarantee, but if the deal goes through PeopleSoft and Oracle customers will be dealing with a larger company with larger market share and more stability."

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