Enterprise software providers struck back at Oracle
Monday, calling the database provider’s surprise $5.1 billion cash offer to buy rival enterprise software company PeopleSoft
a power play to be resisted.
“I believe an Oracle acquisition of PeopleSoft raises such serious antitrust problems that it will face months of investigation by both the United States Department of Justice and the European Commission,” said Bob Dutkowsky, president, CEO and chairman of J.D. Edwards, an enterprise software provider that PeopleSoft planned to acquire before Oracle made its bid.
The response followed Oracle’s
$16 per share bid for PeopleSoft on Friday, which sent shockwaves through the software industry and prompted PeopleSoft CEO Craig Conway to blast the offer as “atrociously bad behavior from a company with a history of atrociously bad behavior.”
Conway went on to suggest Oracle’s CEO Larry Ellison was merely trying to dash
PeopleSoft’s prior bid to acquire J.D. Edwards for $1.7 billion in stock, announced only five days before.
During a conference call Monday, Dutkowsky spoke glowingly of “synergies” and the complementary nature of the planned merger between PeopleSoft and J.D. Edwards, claiming that the marriage would
create a business with 11,000 customers (4,500 large enterprise customers; 6,500 medium-sized customers), and $2.8 billion in combined annual revenue.
He then blasted Oracle’s bid as a risky, anticompetitive action that antitrust regulators would likely scratch.
“Oracle’s hostile tender offer will eliminate at least one of Oracle’s major competitors in several market spaces to the obvious detriment of customers,” Dutkowsky said.
Dutkowsky questioned Oracle’s intention to discontinue the PeopleSoft
product line in the future (if its buyout bid is successful), claiming that it would limit choice for customers.
“This elimination of a competitor, its product and their ongoing
development, would reduce customer choice and product support. It would
leave many customers with greatly diminished options — the many who have
invested in the PeopleSoft platform. This harm to customers is exactly what
antitrust laws are intended to protect against. I believe Oracle’s attempt
to take over PeopleSoft raises serious questions about their commitment to
When told during the conference call that Oracle said it would offer free software upgrades for PeopleSoft customers in order to avoid the potential difficulty of integrating Oracle and PeopleSoft products, he scoffed at the notion that
Oracle is giving anything away for free.
“In the world of enterprise software, free is not free,” Dutkowsky said. “In
fact, we’ve had situations in recent quarters where we’ve competed against
Oracle and Oracle’s final bid was free and we still won. Free is not free.
The cost to an enterprise to implement software of the magnitude of J.D.
Edwards, PeopleSoft or Oracle — the software often is just 5 percent of the
real cost of the company. There’s implementation, there’s build out, there’s
customization, there’s training of thousands of users — and when you add
all that up, free is not free.”
Oracle, whose bid for PeopleSoft expires July 7, did not respond to requests
for comment as of press time. Analysts, including Deutsche Bank Securities, meanwhile, weighed in with their take on Oracle’s strategy.
“We believe the execution risk at Oracle will be minimal going forward
because it does not intend to merge PSFT and ORCL products and PSFT products will not be sold in new deals,” DB said in a note. “We expect headcount integration to be opportunistic and minimally disruptive. We view the acquisition as a financial plus for ORCL… we believe there are significant cost-savings opportunities from combining the companies operations.”
Siebel Systems, which competes with PeopleSoft, Oracle and J.D.
Edwards in chasing enterprise application market leader SAP, issued a brief, terse statement after Oracle’s bid.
“Enterprise software is about customer satisfaction and return on
investment,” said a Siebel spokesperson. “A highly motivated, highly
satisfied workforce is a requirement to help customers achieve these
objectives. It is difficult to understand how these concepts can be
consistent with a hostile takeover.”
Paul Hamerman, director at Forrester Research, was also critical of the deal.
“This seems to be an attempt to take a key rival out of play, or at least to
disrupt the pending merger between PeopleSoft and J.D. Edwards,” Hamerman
“This does not appear to be a good thing for PeopleSoft customers — most
will not want to move to Oracle’s applications. The business justification
and the overall deal appear to be shaky at best.”
Paul Birch, CEO of Toronto-based enterprise applications provider Geac, which competes with the other vendors
in some segments of the mid-market, said he was not surprised by the Oracle bid.
October, we actually anticipated a big landscape change in ERP because the
market is maturing and as markets mature, consolidation happens. We saw it
when Microsoft came up from the bottom to acquire Navision and Great Plains
Solutions,” he told internetnews.com.
Birch said he thinks about the only thing left is for the mid-market firms,
which includes his own Geac, to be acquired or prey on each other. He
pointed to the sale of Baan to an investor group last week in addition to
the obvious play for J.D. Edwards by PeopleSoft. All of the acquisitions, he
said, create unanswered questions in terms of long-term product
enhancements. This uncertainty in the industry can only hurt software sales
growth, he said.
“With the way things are now, I’m not sure I’d write a check for an ERP
product,” Birch said.
Birch said one of the interesting aspects about this is the different views
of how successful PeopleSoft and J.D. Edwards have been of late. Ellison
made references to the struggles of PeopleSoft and J.D. Edwards in recent
quarters, while those firms pledged solid cash balances.
Dutkowsky said his firm enjoys a “$400 million cash balance and no debt,
while PeopleSoft has a $2 billion cash balance with virtually no debt.
“I don’t agree with Mr. Ellison’s view that J.D. Edwards and PeopleSoft are financially distressed,” he continued.
“It’s obvious Ellison has a very different view of how well PeopleSoft has been doing,” Birch said. “There are interesting debates on both sides of the story. I think if PeopleSoft were to be successful, Oracle would be relegated to third place in the applications segment. Buying PeopleSoft would keep them in second.”
However, Birch also found it odd that PeopleSoft and J.D. Edwards executives
Conway and Dutkowsky swear on the similarity of corporate cultures,
something he said was amusing.
“PeopleSoft is from California and J.D. Edwards is in Denver,” he said.
“They’re not similar cultures at all. I imagine it will be challenging to
put them together.”
Ditto for an Oracle/PeopleSoft marriage: analysts say the firms have been archrivals for years.