Buyout bids rock ERP landscape

In a stunning turn of events, Oracle Corp. recently said it will make an unsolicited US$5.1 billion offer to buy rival PeopleSoft Inc., a maneuver that came just four days after PeopleSoft announced a merger with J.D. Edwards & Co. that would propel it past Oracle in sales of business applications.

PeopleSoft and J.D. Edwards users reacted with dismay to the hostile takeover bid by Oracle, which currently is the second-largest applications vendor behind SAP AG. Users’ concerns were exacerbated by statements from Oracle that it would not actively sell PeopleSoft’s applications to new customers and that it would reassess whether to go forward with the deal between PeopleSoft and J.D. Edwards.

Jim Prevo, CIO at Green Mountain Coffee Roaster Inc. in Waterbury, Vt., described the prospect of Oracle succeeding in its bid as “a disaster” for PeopleSoft users like his company. “Oracle’s culture does not match ours,” he said. “My suspicion is that several years of ownership by Oracle would destroy much of what we value in PeopleSoft.”

Prevo noted that when Green Mountain Coffee bought PeopleSoft’s applications, “we deliberately chose a company other than Oracle” on the basis of issues that included software functionality, ease of use and cultural fit.

Todd Inlander, CIO at Fleetwood Enterprises Inc., a J.D. Edwards user in Riverside, Calif., said he also hopes that Oracle doesn’t end up buying PeopleSoft. “My sense is that PeopleSoft would have more sense than to allow this,” he said. “The cultures are dramatically different here.”

Talks Held Last Year

Oracle said expected to begin a tender offer for all the shares of Pleasanton, Calif.-based PeopleSoft on June 9. During a conference call on June 6, Oracle CEO Larry Ellison disclosed that he and PeopleSoft counterpart Craig Conway discussed a possible merger last year without reaching an agreement. Ellison insisted that the proposed buyout “works financially and technically” for both PeopleSoft and Oracle users.

Oracle would continue to develop and support PeopleSoft’s applications for existing users, Ellison said. But it also would add features from those products to its own E-Business Suite software and make it easier for PeopleSoft users to migrate, he added.

Conway, a one-time Oracle executive, said in a statement that the buyout offer was “atrociously bad behavior from a company with a history of atrociously bad behavior.” He characterized the takeover bid as “a transparent attempt to disrupt the acquisition of J.D. Edwards by Peoplesoft.”

PeopleSoft noted that its board would review the offer as required by law, but it recommended that shareholders take no immediate action.

Andrew Ball, a London-based analyst at Frost & Sullivan Inc., said in a report that Oracle’s bid “is a supreme piece of opportunism.” But the price it’s offering is likely too low, Ball said, adding, “The only lasting consequence may be the addition of an extra edge to the competition between Oracle and PeopleSoft.”

That already seemed assured by PeopleSoft’s agreement to acquire Denver-based J.D. Edwards in a stock-swap deal valued at about US$1.85 billion, based on the closing price of PeopleSoft’s stock on Friday. The plan to combine those two companies and make PeopleSoft the No. 2 business application vendor caused considerably less consternation among users than Oracle’s hostile move did.

Executives at PeopleSoft and J.D. Edwards pledged to maintain the existing product lines of each company. A spokeswoman for J.D. Edwards added that there would be no management changes there and said it would operate as a subsidiary of PeopleSoft.

“This came as a surprise, but it seems to make sense for the firms to consolidate, as (companies in) many other industries are having to do to stay financially viable,” said Irving Tyler, CIO at Quaker Chemical Corp. in Conshohocken, Pa.

Quaker Chemical is in the midst of a multiyear global implementation of J.D. Edwards’ OneWorld XE applications and is using the software to run its European operations. Tyler said his biggest concern about the planned acquisition is “what the impacts will be in terms of our existing relationships with J.D. Edwards, especially from a technical (support) point of view.”

Inlander said he has no major worries about the PeopleSoft/J.D. Edwards deal, “other than wondering if the sales force structure will change and we’ll have a different account person.” He also noted that some J.D. Edwards applications that overlap with Oracle, such as its human resources software, eventually “might fall by the wayside.” Fleetwood, a maker of recreational vehicles and mobile homes, uses J.D. Edwards’ ERP and supply chain software.

Joshua Greenbaum, an analyst at Enterprise Applications Consulting in Daly City, Calif., said buying J.D. Edwards would give PeopleSoft increased “credibility in manufacturing and a critical mass of customers” – two things it needs to compete more effectively against SAP and Oracle.