Oracle $5bn PeopleSoft bid is 'political'

Market watchers divided on merits of $16 a share offer - SAP to benefit?

Gareth Morgan, vnunet.com 06 Jun 2003

Market watchers have described Oracle's surprise $5.1bn (£3.1bn) cash bid for rival PeopleSoft as "political", and said that, were it successful, PeopleSoft's customers would "hurt the most".

Oracle's move comes just days after PeopleSoft unveiled its surprise plans to buy mid-market enterprise resource planning vendor JD Edwards for $1.7bn (£1bn).

A JD Edwards acquisition would see PeopleSoft overtake Oracle in the business software market.

Analysts are split on the merits and chances of Oracle's audacious bid. AMR Research dismissed the bid as "typically provocative" and "difficult to pull off".

A research note credited to four AMR analysts said it was "a deal that had all the signs of a political move designed to derail PeopleSoft's plans to buy JD Edwards".

But David Bradshaw, principal analyst at Ovum, believes that it could happen. "There may be changes to the price, but I think the chance of success is pretty good," he said.

Oracle has only $5.5bn in cash reserves but insisted that it would arrange a credit line with Credit Suisse First Boston to fund the deal.

If the Oracle bid is successful it would take PeopleSoft out of the market completely.

Oracle intends to continue to support PeopleSoft's existing software, but would not produce further products, instead offering support for migration to Oracle applications.

"We can offer [customers] a much more comprehensive set of services," said Oracle chief executive Larry Ellison (pictured).

Oracle's plans for support would include extending the deadline for users running PeopleSoft 7, which is due later this year, and not charging additional licensing for moving to Oracle products.

But Bradshaw dismissed Oracle's claims that users would be attracted to the vendor's applications because of its database software.

"The database is largely irrelevant because you'll be tied to Oracle whatever you want. Users will choose the easiest migration. This could be good news for SAP," he said.

Bradshaw suggested that users will like the option of remaining on their current version of PeopleSoft, but may find swapping to SAP a more appealing choice.

"They are going to have to upgrade at some point, they know that. But we believe many PeopleSoft users also have some SAP, and will see that as an attractive upgrade choice," he said.

AMR's research note added: "If I'm SAP I love this because it puts every PeopleSoft customer back in play."

See also:

Oracle vs PeopleSoft vs JD Edwards

The pitched battle between Oracle, PeopleSoft and JD Edwards has been a maelstrom of claims, counterclaims, lawsuits, revised offers and speculation. And it looks set to run and run ... 15 Jul 2003