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Food Fight!! Food Fight!!

Food Fight!! Food Fight!!

Oracle Makes Shock-and-Awe Raid on PeopleSoft, PeopleSoft Rejects Oracle's Hostile Takeover, Oracle Hangs Tough, Whimpering, JDE Sues Oracle for $1.7b

The program for the summer's entertainment was set last Friday when Oracle mounted a surprise $5.1 billion cash raid on PeopleSoft, just four days after PeopleSoft announced that it would buy JD Edwards for $1.7 billion in stock.

Since then the market has bid up PeopleSoft shares, thinking Oracle will eventually better its $16-a-share price. Oracle has starting a tender. The PeopleSoft board has formally rejected Oracle's bid and JD Edwards, whose managers had cut some really sweet termination deals with PeopleSoft according to Oracle's inimitable CEO Larry Ellison, has sued Oracle in both Colorado and California for tortious interference demanding $1.7 billion, the price PeopleSoft would have paid for it, in compensatory damages and some untold amount in punitive damages. It also wants an injunction to stop the tender offer.

The Oracle move knocked USB Warburg - among others - for a loop and forced it to do some quick rethinking. Ultimately it made the Old Testament-style pronouncement - reminiscent of that dream Joseph interpreted - that "Oracle/PeopleSoft will be remembered as a galvanizing moment in tech history whether the deal is completed or not. In 1993 BEL/TCI marked the beginning of the seven-year telecom expansion. We think Oracle/PeopleSoft will mark the beginning of a seven-year consolidation."

Warburg also opined that "The timing of Oracle going hostile is perfect. Boards around the world will be waking up to the deep problems the entire industry faces. Consolidation to date has been virtually non-existent. Those that don't quickly determine their intentions will likely be left without a seat in a few short years."

  When PeopleSoft rejected Oracle Thursday, it followed JDE's earlier lead and - aside from labeling Oracle a spoiler - claimed that an Oracle-PeopleSoft tie-up would never pass antitrust scrutiny in a million years. It said it was anticompetitive and would leave only two players in the enterprise software space with integrated suites - SAP, the leader, and Oracle. 

PeopleSoft claimed that regulatory approval would take ages and - combined with Oracle's stated intention to discontinue PeopleSoft's products - would negatively impact its financial performance. 

Besides, it said in a written statement, "The offer dramatically undervalues the company," suggesting later during a press conference Thursday afternoon that it wasn't interested in Oracle's offer at any price. 

With the Oracle bid "unanimously" rejected by the PeopleSoft board, its CEO Craig Conway said, "From our point of view, this process is at an end."

  His shareholders may of course feel differently and that's what Oracle's counting on.

Larry, amused, wanted to know how PeopleSoft could claim antitrust concerns when last year Conway had offered to buy Oracle's apps. "The only difference," Larry said, "is that his way he would be running the company and my way he won't."

Larry got to offer his perspective because Oracle moved up its fiscal Q4 numbers revelation a week to Thursday evening so Larry could make some telling comparisons between Oracle, PeopleSoft and the proposed PeopleSoft-JDE combine. 

Oracle came in a tiny bit ahead of forecast returning 16 cents a share, up 31% year-over-year, on revenues of $858 million. When it announced its hostile bid for PeopleSoft, it said it would do 14 cents-15 cents. 

The numbers gave Larry the opportunity to point out that Oracle was up 68% while PeopleSoft was off 28% in an up market and that PeopleSoft's new license sales had dropped 39% to $80 million in its latest quarter, while Oracle applications just came in up slightly at $246 million.

  While "PeopleSoft's business is under stress" according to Larry - heck, it's losing accounts like Merrill Lynch to Oracle so Larry can't understand how PeopleSoft CEO Craig Conway can claim "unanimous" support among his customers when "on the face of it it's not true'" or for that matter claim that PeopleSoft has "strong momentum in the market" when it's down 39% - JD Edwards is in "worse shape" and "lost money in its most recent quarter," Larry said, trying to reach out past PeopleSoft's obdurate management to its shareholders and paint a picture of the PeopleSoft-JDE merger - a company down 39% pairing with a company losing money - being a "very risky proposition" - projected to save a mere $80 million in cost cutting when they're combined - compared to the "safer" alternative of Oracle's 16 dollars cash money.

JD Edwards, the company whose future is hanging in the balance and is relatively powerless to influence how the chips fall, slammed Oracle's hostile bid for PeopleSoft first thing Monday, charging that the move was anticompetitive and then followed up Thursday with its twin suits, the one in California naming Ellison and Oracle's brand-new executive VP Chuck Phillips, formerly a Morgan Stanley star analyst, personally. Oracle blew the suits off.

"An Oracle acquisition of PeopleSoft raises such serious antitrust problems that it'll face months of investigation both by the US DOJ and the EC," said JD Edwards CEO Bob Dutkowsky. "I believe there's a high likelihood that one or both agencies may end up blocking the transaction," the same chant PeopleSoft has taken to repeating.

Poor man, he spent eight months negotiating the PeopleSoft merger and was down to trying to spook his audience, largely the 7,000 people who came to JDE's user conference in Denver. Oracle said it would put the acquisition of JD Edwards on hold until it decides whether to pursue it or not and on what terms, doubtlessly dooming JDE to single blessedness.

Dutkowsky claimed an Oracle acquisition of PeopleSoft would reduce customer choice and product support. He was unable to answer a question posed by one of his own clients as why PeopleSoft shareholders should snap their fingers in the face of Oracle's offer. Oracle started the $16 tender offer Monday for PeopleSoft, a modest 6% premium that Larry doesn't seem inclined to up any at this point. 

When last seen, however, PeopleSoft was at $17.37, not quite as heady as it's been in the last few days. It got to $17.90 for a while there on the theory that Larry will have to sweeten the pot to, oh, maybe 20 bucks. On the other hand, the sincerity of Larry's motives and his staying power has been widely suspect.

Larry has said that if Oracle gets PeopleSoft, the PeopleSoft product line will disappear and its customer base shifted to Oracle applications. Dutkowsky claims, "This will leave many customers with greatly diminished options. This harm to customers is exactly what antitrust laws are intended to protect against."

Larry claims customer will actually have more choice under his regime. They'd get to try Oracle apps for free if they wanted, he said, or they could stay on PeopleSoft 7 or move to PeopleSoft 8. Under the PeopleSoft administration the only choice, he said, was going to PeopleSoft 8.

Ellison also said that advanced features in PeopleSoft products would be sucked up into future versions of Oracle's eBusiness Suite, how and when is altogether unclear.

Oracle's migration plans kills competitive products, eliminates the integration risks involved in big acquisitions, which Oracle is unused to, and gives its struggling eBusiness Suite a fillip. It probably should be noted that lots of PeopleSoft and JD Edwards customers are on IBM platforms, and so Oracle gets to take a swipe at IBM too.

In contrast Dutkowsky contends that PeopleSoft's acquisition of JD Edwards would increase customer choice since both product lines would be kept going.

A highly irritated Craig Conway, a former Oracle employee, has raised the tenor of the conversation this week to name-calling, characterizing Oracle's tender offer as "atrociously bad behavior from a company with a history of atrociously bad behavior."

  He likened Ellison to Genghis Khan, who raped and pillaged his way across Asia to create an empire that stretched from the Pacific to the Black Sea, and called him a "sociopath" and his offer "diabolical." He questioned Ellison's "integrity, honesty and ethics."

JDE CFO Rick Allen said Oracle merely meant to disrupt the JDE acquisition.

By law, Conway and his board have to review all cash tenders irrespective of intent. Conway threatened to sue Oracle seeking a temporary restraining order. Late Tuesday he changed his mind and called the lawyers off. PeopleSoft didn't explain itself, but it's thought it was trying to avoid getting sued by stockholders anxious to see if Oracle would sweeten the deal. 

The big question has been whether Ellison intends to go through with the acquisition or is just trying to torpedo the PeopleSoft-JDE deal and cause confusion among their existing and potential customers. People won't sign because of the uncertainty; Gartner, for instance, is advising its clients to hold off finalizing any deals with either PeopleSoft or JD Edwards until the haze lifts. That put the companies in a revenue bind.

Not only is this the second time Oracle has toyed with acquiring at least parts of PeopleSoft or selling its dicey apps to PeopleSoft or putting them together in a separate company, Oracle has also considered buying Siebel, according to the Wall Street Journal, and evaluated buying JDE itself, making a call right before the PeopleSoft-JDE definitive agreement went down. 

USB Warburg admits that it's conceivable that "Larry Ellison is just having fun annoying PeopleSoft's CEO Craig Conway and will go away in a week and we will all forget the whole matter like it was a bad dream." But it doesn't think so. 

"At the bare minimum," it says, "this deal syncs with Larry Ellison's view of a consolidated industry that follows the end of the 1990s fairy tale. It fits with his vision of what the world will look like. Additionally, he just brought on Chuck Phillips as a strategist. Would Chuck have moved over to simply torture folks like Craig Conway for a few days, or does he have a vision he is set on creating? And if so, does that vision probably sync with Larry Ellison's own?" 

It says, "We think this deal is not gonna close quickly, and the odds of Larry Ellison quickly walking away are remote."

Oracle also doesn't have the cash hoard of a Microsoft. As of a few days ago, it had only $6.6 billion in the bank. However, it's gotten a commitment for a $5.1 billion revolving credit facility from Credit Suisse First Boston. It would also be buying PeopleSoft's $2 billion bank account.

By Oracle's calculations, a PeopleSoft acquisition would increase its EPS in the first combined quarter. Prudential reckons Oracle plus PeopleSoft would have 23% of the market to SAP's overwhelming 59%. Oracle figures SAP's ERP lead would satisfy regulators.

It all depends on how they define the market. Oracle has filed for Hart-Scott-Rodino review. The FTC and the Justice Department will flip for who gets to do it.

The Oracle tender theoretically runs until July 7.

Dutkowsky said the breakup fee is something like 3.25% of the value of the deal. The Wall Street Journal mentions Microsoft as a possible white knight (probably unlikely) as well as IBM (but only if it changes its no-apps policy).  If Oracle really does the PeopleSoft deal, Microsoft and its applications interests are seen as its real rival. At least Microsoft thinks so and Oracle said so.

Linuxgram is published weekly by G2 Computer Intelligence Inc.

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More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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Kevin 06/15/03 01:24:00 PM EDT

Oracle's App Server is pathetic. I've used it and it rots compared to BEAS and IBM. Others such as Sybase and Macromedia's perform better and gives you a competitive cost advantage compared to implementing Oracle's infrastructure. This deal shows how feable Oracle has been in getting a large penetration into the App Server market. Check out www.theserverside.com for more details.

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