Software // Enterprise Applications
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11/23/2004
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Oracle V. PeopleSoft Could Last Several More Months

Although Oracle has won a majority of PeopleSoft's shares, PeopleSoft refuses to give in. A ruling to eliminate PeopleSoft's poison pill isn't likely, and it looks like the two are headed for a proxy battle.

Although Oracle was able to grab 61% of PeopleSoft Inc.'s shares late last week, it's unlikely the database company will score any more victories in its acquisition battle before Thanksgiving, and possible that the two software companies will continue to wage war for several more months.

On Wednesday during a scheduled 9 a.m. hearing, Vice Chancellor Leo Strine of the Chancery Court of Delaware will determine a date for deciding whether to leave intact the poison pill that PeopleSoft could trigger to block the takeover. Strine could decide to rule on the matter at that time, but it's not expected, according to an Oracle spokeswoman.

PeopleSoft continues to rebuff Oracle. And if, as some expect, the poison pill isn't eliminated, Oracle will have to fill seats on PeopleSoft's board with people who are more favorable to its position. Four seats are up for re-election at the next shareholders' meeting, which hasn't yet been scheduled. This year it was held on March 25. A PeopleSoft spokesman says Oracle has until Thursday to propose its line-up of directors for the shareholder vote. Control of the board would enable Oracle to eliminate the poison pill and approve the acquisition.

It all adds up to more maneuvering with unclear consequences. "In the short term I see pain for F.W. Murphy because there's no foreseeable benefit if Oracle acquires PeopleSoft," says Mitch Myers, VP of operations at F.W. Murphy Manufacturing Co., a manufacturer of equipment management, monitoring, and control solutions. F.W. Murphy uses EnterpriseOne, the old J.D. Edwards enterprise application suite that PeopleSoft acquired, and has been a customer since 1995. "Change is constant, and if Oracle wins this deal, we'll have to evaluate the choices at that time."

Myers' concern is justifiable. Oracle hasn't been very vocal about what they'd do with the J.D. Edwards product line, and some say Oracle hasn't given much thought to the products, which are geared toward small and midsize businesses. Keeping J.D. Edwards' line intact would give Oracle ammunition against Microsoft and SAP, both of which are making headway in the enterprise applications market for small and midsize companies.

AMR Research recently surveyed a group of PeopleSoft customers on their plans if Oracle succeeds in acquiring PeopleSoft. The respondents heavily rely on the J.D. Edwards applications, with 55% using EnterpriseOne, formerly OneWorld, and 38% using World. Out of the 150 customers who responded to the survey, 64% have low expectations for the fate of their products, 47% expect Oracle to offer no new functions, and 17% expect minimal enhancements. Not surprisingly, 63% said they would drop maintenance immediately if Oracle stops enhancing the products, even if support from Oracle or third parties was available for half the price of current maintenance charges.

What Oracle really wants is to beat IBM and Microsoft in the infrastructure game, and if it has an opportunity to move PeopleSoft's customers onto its database architecture, it will gain ground. Software companies lacking an infrastructure product line to support their applications don't survive, according to Dale Kutnick, chairman and research director at Meta Group. "You can't sell someone an application package if you can't offer them security, communication, integration, and middleware, because it becomes isolated, and this is why the industry is consolidating," he says.

Although Oracle's fight for PeopleSoft has been a distraction, next month at OracleWorld in San Francisco the company is expected to unveil an expanded middleware line to support its business applications. It's the first time its annual database and applications conferences will role into one venue, signifying an evolution from a database company to a software stack provider. The comprehensive line of infrastructure software would compete with Microsoft's .Net and IBM's WebSphere products.

Today, Oracle's middleware business accounts for less than 5% of the company's overall revenue. Whether or not it's successful in acquiring PeopleSoft, building a complete infrastructure line to support applications across its products is vital to Oracle's long-term prospects, analysts say.

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