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Oracle's Bid: Style Matters

By Larry Dignan  |  Posted 2003-07-24 Print this article Print

Oracle's bid for PeopleSoft could have turned out differently if CEO Larry Ellison didn't lose style points in the company's opening volley.

NEWS ANALYSIS: Oracle's bid for PeopleSoft could have turned out differently if CEO Larry Ellison didn't lose style points in the company's opening volley.

Consider how PeopleSoft customers might have reacted differently to Oracle's hostile takeover bid if not for this paragraph in the database giant's initial press release.

"Although we will not be actively selling PeopleSoft products to new customers, we will provide enhanced support for all PeopleSoft products," said Ellison in a June 6 release. "Furthermore, we will be incorporating the advanced features from the PeopleSoft products into future versions of the Oracle eBusiness Suite."

Translation: You will be assimilated.

That statement—crafty from a business perspective—at first seemed like genius. The hostile bid, which played well with Ellison's reputation as an aggressive but shrewd executive, had two initial effects. First, the impression that Oracle may wind up with PeopleSoft for a decent price. Or, if the bid failed, the overhang about the assimilation would torpedo PeopleSoft's ability to sign new customers, weakening a main rival in the applications business even if the deal wasn't completed.

On a conference call, Ellison put on a softer shoe, saying PeopleSoft customers would get better support with Oracle and could keep their software. "We're not going to push the PeopleSoft customers to move to Oracle, or even to move PeopleSoft to the latest version of PeopleSoft," said Ellison.

The damage from that initial statement, however, was done. If Oracle's bid fails, Ellison's in-your-face style may be a reason the takeover attempt flopped. SAP CEO Henning Kagermann says the way Oracle handledthe PeopleSoft takeover "was not very professional."

Oracle has been trying to win over PeopleSoft customers ever since its bid was announced, most recently with a "town hall" conference call meeting July 17. On the conference call, PeopleSoft customers peppered Oracle executive vice president Chuck Phillips about future versions of PeopleSoft and the perceived conflict between the June 6 statement and what the company has said since. Phillips says the media and PeopleSoft management "misinterpreted" Oracle's intentions and the company has no plans to jettison PeopleSoft products.

Given Oracle's full court press to PeopleSoft's customers, it's clear that they matterat least a little compared with shareholder interests—especially if the price isn't right. "Customers wouldn't have much of a choice if the bid was $22 a share instead of $19.50," says David Hilal, an analyst at Friedman Billings Ramsey. "But at $19.50, Ellison's style points matter."

Ellison may be polarizing enough to inspire PeopleSoft customers to buy more software. PeopleSoft's "customer protection plan," which offers return rights on license sales if Oracle buys PeopleSoft, assuaged customer fears. The company reported a solid second quarter, with revenue up 8% from a year ago. PeopleSoft CEO Craig Conway's contention that customers rallied to his company to fend off Oracle sounds corny, but maybe he's right.

Now Oracle's takeover attempt is sucking wind, say analysts. PeopleSoft's acquisition of J.D. Edwards is a done deal, making an Oracle takeover more complicated and expensive. With J.D. Edwards in the fold, PeopleSoft also has eight board members, a tally that means Oracle would need to take over five board seats to gain control of the company, says Hilal.

Oracle's takeover attempt may reek of desperation. Oracle can't afford to be No. 3 in applications behind both SAP and the enlarged PeopleSoft, especially when its database business is under fire from IBM, Microsoft and freebies such as MySQL.

So many shifts have been made in the Oracle CEO's arguments that he risks being renamed Larry "Ellispin." PeopleSoft customers could stick with PeopleSoft 7 if they wanted, says Ellison. There's no rush to move to Oracle's e-business suite. Full-page ads guarantee 10-year support. Voila! A kinder, gentler Oracle.

On the conference call, Phillips said Oracle's public declaration to support PeopleSoft should "be enough to give (customers) some comfort." but apparently it isn't. Oracle will have to evaluate future directions for PeopleSoft and pricing formats, says Phillips, adding that future development of PeopleSoft 9 is a "marketing event." Oracle would continue to enhance the application but may not call it a new version.

"If you're asking me to predict all possible enhancements and developments over the next three years to the PeopleSoft product line and get more specific, no one can do that," says Phillips.

Ellison's pitch boils down to: Trust me.

Do you?

Business Editor
Larry formerly served as the East Coast news editor and Finance Editor at CNET News.com. Prior to that, he was editor of Ziff Davis Inter@ctive Investor, which was, according to Barron's, a Top-10 financial site in the late 1990s. Larry has covered the technology and financial services industry since 1995, publishing articles in WallStreetWeek.com, Inter@ctive Week, The New York Times, and Financial Planning magazine. He's a graduate of the Columbia School of Journalism.
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