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Monday, December 13, 2004

Oracle/PeopleSoft: deal is done

The drama is over. This morning Oracle announced that PeopleSoft has agreed to the take-over. Oracle had to sweeten the deal, however, to get PeopleSoft to throw in the towel, raising its offer price to $26.40 per share from the $24 that PeopleSoft had rejected as inadequate.

Today was a good day for Oracle, not only in winning its bid for PeopleSoft, but also in announcing improved quarterly earnings of $815M, which is 32% above the same quarter last year and two cents above Wall Street estimates for the current quarter. Revenue is $2.76B, up 10% from the same quarter last year.

As a result, Oracle shares are up 9.5% as of this writing.

Oracle CEO Larry Ellison was on CNBC just now, obviously happy, talking about the boost that the deal will give to Oracle's ability to compete with SAP. He indicated that, yes, there will be layoffs, because there is no need for two CEOs, two CFOs, etc., but that there would be layoffs among Oracle employees as well as PeopleSoft's. At the same time, however, he emphasized that Oracle will be increasing support for PeopleSoft customers.

Oracle has said that it intends to continue its acquisition program, regardless of whether it was successful in acquiring PeopleSoft. In a conference call earlier today, Ellison indicated that further acquisitions would not be undertaken until PeopleSoft is fully digested.

What does all this mean for customers and prospects of PeopleSoft? Over the short term, not much. As I have written previously, Oracle is aggressive but it's not stupid. It won't do anything to risk loss of PeopleSoft customers at this point, who are the whole reason that Oracle wanted PeopleSoft in the first place. And, as far as I can tell, there is still the matter of PeopleSoft's Customer Assurance Program, which promises recent clients a massive rebate if Oracle cuts support for PeopleSoft products.

However, for the long run, Oracle has got to be looking at making changes to PeopleSoft products to align them more firmly toward Oracle's database and tools. Oracle has always viewed the applications business as pulling through its database and middleware products. If I were a PeopleSoft customer and not running Oracle underneath it, I would keep a close eye on Oracle's actions. Again, I don't think there will be any issues short term, but I would factor this concern into my long term plans.

I would also watch Oracle's actions relative to the former J.D. Edwards product lines (Enterprise One, and World). These products have less of an alignment to Oracle's technology platforms than the main PeopleSoft products (Enterprise) do. I think there is a good chance that Oracle will look to sell the JDE products off in the near future. This would simplify the digestion of PeopleSoft and would offset some of the cost of the acquisition, freeing cash for other deals. But as I have written previously, there are not many parties that would be viable owners for the JDE product lines, except perhaps SSA Global.

Related posts
Flash: PeopleSoft shareholders tender majority of shares to Oracle
Possible outcomes of Oracle's takeover bid for PeopleSoft

by Frank Scavo, 12/13/2004 08:26:00 AM | permalink | e-mail this!

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