Poor argument a factor in Oracle victory

A flawed argument by The U.S. Department of Justice (DOJ) was ultimately responsible for a judge’s decision to allow Oracle Corp. to pursue its hostile takeover attempt of rival PeopleSoft Inc., Meta Group Inc. analysts said recently during a conference call with more than 700 listeners.

In September Oracle won a lawsuit against the DOJ, which the DOJ initiated in order to block Oracle’s hostile takeover attempt of PeopleSoft on the grounds it would be anti-competitive.

Now that Oracle has won the suit, it is free to pursue PeopleSoft and has effectively cleared what Meta Group called the most significant roadblock to the acquisition.

“Basically the Department of Justice showed up with a pretty bad argument,” said David Yockelson, senior vice-president of the Meta Group Inc.

“The scope of the market it created was both geographically and functionally too small and too restrictive. It didn’t appear to discuss customer buying patterns the right way and most interestingly, perhaps, it failed to recognize key competitors aside from Oracle and PeopleSoft.”

Competitors the DOJ did not acknowledge were SAP AG, Lawson Software and various outsourcers, plus smaller, best-of-breed players like Siebel Systems Inc., Yockelson said. As a result, the DOJ was unable to paint an accurate picture of the potential harm Oracle’s takeover of PeopleSoft could cause. Oracle simply had to disprove the view of the world the DOJ presented in order to win.

But Oracle still has a few hurdles to jump before its ownership of PeopleSoft can become a reality. First, it will likely have to contend with an appeal by the DOJ. Although the DOJ has not yet filed one, it is likely to, but Yockelson said Oracle would likely win an appeal.

Also, Oracle still has to beat down a lawsuit by PeopleSoft, which accuses Oracle of disrupting and hurting PeopleSoft’s business through the takeover attempt. PeopleSoft also has a clause, which is frequently referred to as a “poison pill,” which lets the company tinker with its shares to make the company exceedingly expensive if there is a hostile takeover threat. Even if Oracle manages to defeat these obstacles, it still needs to woo PeopleSoft’s shareholders and conduct its due diligence on PeopleSoft’s assets.

The fact that Oracle has not done the latter has left the industry wondering what it would do with the company’s products after a takeover.

Oracle has pledged to support the PeopleSoft product lines and said it will not force its customers to migrate to its products. Also, Oracle said customers can even expect to receive enhancements and upgrades on their PeopleSoft products. “Our aim is to support PeopleSoft products just as if they were Oracle applications,” Oracle’s Web site reads.

But PeopleSoft users will be able to migrate to Oracle’s E-Business Suite for free if they choose. “PeopleSoft customers will receive free module-for-module exchanges to the E-Business Suite product superset along with Oracle database licenses for the applications,” Oracle’s Web site reads. “Customers can stay on PeopleSoft’s applications or migrate to Oracle applications and infrastructure at their discretion. Either way, it’s entirely their choice and Oracle will support both options.”

Michael Doane, vice-president, professional services strategies at the Meta Group said users of the former J.D. Edwards (JDE) have the most to lose if Oracle Corp. succeeds in taking over PeopleSoft. Meta Group said Oracle has stayed away from discussions about what it would do with the JDE product line — now called PeopleSoft Enterprise ONE. The Enterprise ONE offerings are aimed at smaller markets that are growing more rapidly. The rest of PeopleSoft’s products are playing in a mature marketplace, which is why PeopleSoft revenue is lagging.

Doane said last year when Oracle initially announced its intentions to acquire PeopleSoft that it would spin JDE back out on its own but so far this time around, Oracle has been mum on the issue.

Elizabeth Roche, Meta’s vice-president of technology research services, said for users looking for CRM applications, that it would be a good move to implement it now if PeopleSoft is giving a discount on the software and if the user is not worried about the possibility of having to change software in a couple of years.

She said PeopleSoft HCM is still a good investment because it is best-of-breed and that users of Finance 7.5 and later versions should upgrade to Finance 8.

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