Unraveling
The Oracle/Peoplesoft/J.D. Edwards Deal
PeopleSoft thought it had made a great
decision. It spent much
management time and effort crafting a deal to buy Mid-Market
manufacturing software vendor J.D. Edwards for $1.7 billion in
PeopleSoft stock. We
thought it was a good idea, too.
(See our earlier article at http://www.wohl.com/wa03-59.htm)
But Oracle – who is having trouble
maintaining its revenue growth and position in the Enterprise
Software Market – didn’t like the idea at all, especially
because it would put the combined PeopleSoft/J.D. Edwards in the
Number 2 position, second only to enterprise software giant SAP.
And Oracle’s eccentric leader Larry Ellison is well-known
for taking surprise actions – but not necessarily for completing
them.
Within the same week as PeopleSoft
announced its intention to buy J.D. Edwards, Oracle announced a
hostile takeover bid for PeopleSoft at $5.1 billion.
Analysts hastened to poke at the idea:
-
The bid was for less than the market
value of PeopleSoft’s stock.
Such bids usually offer a premium.
Financial analysts have indicated that it would probably
take at least several billion more to convince PeopleSoft
shareholders to sell to Oracle.
-
The bid did not include any interest by
Oracle in the J. D. Edwards deal.
Many assumed it was intended more to derail the
PeopleSoft/J. D. Edwards deal than to actually permit Oracle to
buy PeopleSoft.
-
Rather than immediately assuring
PeopleSoft customers that Oracle would take very good care of
them (the standard procedure), Ellison proceeded to outline a
plan to stop improving the PeopleSoft product and migrate its
customers, as soon as possible, to the Oracle products, using
the PeopleSoft technology, where appropriate, to enhance Oracle
products.
This was probably the real “pointing
finger.” It threw the
PeopleSoft customer base and sales cycle into chaos and has probably
completely disrupted its sales for this quarter. Customers are in waiting mode, afraid to proceed if the
product they rely on (or were about to rely on) is going to start
disappearing.
Perhaps Larry Ellison thought by
disrupting PeopleSoft’s sales cycle, he could lure customers to
Oracle. In fact, most
of the fall-out seems to be moving in the direction of SAP, which
now appears even more stable and enduring than before.
Yesterday afternoon, PeopleSoft, in a
counter-move, changed their all stock offer for J. D. Edwards to a
combination cash and stock offer (at the buyer’s option), that now
totals $1.75 billion. Observers
believe this will be slightly more attractive and could speed up the
process. Both the
PeopleSoft and the J. D. Edwards boards have approved the new
version of the deal and are hoping to consummate it in July, ahead
of the earlier schedule.
If Mr. Ellison behaves as he often has
in the past, his attention will now be diverted in some other
direction, and he will move on.
That would be a good thing, because while a PeopleSoft/J. D.
Edwards combo had everything to recommend it (see our previous
article on PeopleSoft and J. D. Edwards and our URGE TO MERGE
article above), there is little, if anything, to recommend about a
hostile takeover of PeopleSoft by Oracle, particularly one which
doesn’t protect the interests of PeopleSoft customers.
On the other hand, Mr. Ellison may
choose to make a counter-offer, too.
While Oracle doesn’t have the internal cash to make a
realistic offer for PeopleSoft, it could get the financial backing
to raise the required assets. But
it would be a costly deal, especially in this slow market. We’d hope Larry Ellison and his board would notice that and
leave the table, content with having interrupted their
competitor’s sales cycle and getting lots of media attention.
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