SAN FRANCISCO—PeopleSoft president and chief executive Craig Conway said here at the company’s annual user conference, PeopleSoft Connect, that there were “no ulterior motives” behind the announcement that his company and IBM were investing $1 billion over five years in creating what he called “the most significant enterprise applications alliance in the history” of the two companies.
What could one of those “ulterior motives” be, if any existed?
How about this: IBM emerges as the preferred acquirer, a “white knight” in takeover parlance, if Oracle’s hostile effort to buy PeopleSoft appears imminent.
For the record, PeopleSoft said it would infuse IBM’s middleware and development tools with its portfolio of applications, which covers almost all facets of corporate life, from manufacturing to managing payroll to keeping track of human resources. Conway said PeopleSoft would give its customers IBM’s WebSphere products for free when they buy PeopleSoft applications.
IBM’s middleware allows those applications to work with computer code from almost any other source, as corporations pursue what IBM Software Group senior vice president Steve Mills calls “composable processes” that easily link their businesses with partners and customers online.
But the announcement, coming two weeks after a federal judge opened the door for Oracle to keep pursuing its $7.7 billion unsolicited takeover bid for PeopleSoft, amounted to an introduction of a possible white knight—a friendly buyer that is asked to come into a takeover fight and rescue a targeted company when a hostile buyout appears otherwise inevitable.
IBM easily has the wherewithal to step in and outbid Oracle, if it so chooses. Last year, the company recorded $7.6 billion in net income on $89.1 billion of sales. That compares to $2.7 billion of net income for Oracle on revenue of $10.2 billion.
Even the IBM Software Group that Mills heads is a larger supplier of software than Oracle. Its annual revenue is approximately $15 billion, he said, and it has 50,000 employees.
Hundreds of those employees will wind up housed at PeopleSoft’s headquarters in Pleasanton, Calif., as part of the alliance announced Tuesday, according to Mills. Conway called the terms of the agreement with IBM “extremely deep.”
PeopleSoft chief financial officer Kevin Parker said the idea of IBM and PeopleSoft merging was “not part of our conversation today.”
But recall this: SAP earlier this year—in May at SAP’s own user conference, Sapphire, in New Orleans—faced the same conundrum of how to discuss the extension of an existing alliance with Microsoft. Shai Agassi, a member of SAP’s executive board, would not deny at the time—but would also not confirm—that SAP and Microsoft officers had met to discuss a possible merger.
By the first week of June, the existence of the talks was revealed by Microsoft. The impetus: Oracle making its case in court that its deal with PeopleSoft would not be anticompetitive. Microsoft made its disclosure before Oracle did it for the operating-system giant.Don’t be surprised by a repeat performance here. Oracle still must convince the European Commission that a takeover of PeopleSoft won’t be anticompetitive. And it must convince a California court that its aggressive interest in PeopleSoft has not been damaging to its business.
PeopleSoft executives, officers and directors would not be serving their shareholders well if they failed to discuss all possible alternatives to an Oracle takeover. And do so directly with the officers of a potential white knight such as IBM.
Oracle could be in a predicament this time in forcing such a disclosure. It might have to argue to a court that an IBM takeover of PeopleSoft would be anticompetitive.
Based on the facts, though, IBM taking over PeopleSoft could make for a more competitive database market. On its Web site, Oracle promotes market statistics from International Data Corp. that show its database systems in 2003 captured 39.8 percent of the market. No. 2? IBM, at 31.3 percent.
But that line of argument is not likely to be adopted by Oracle, as long as it still has a shot at buying PeopleSoft.
