Oracle's PeopleSoft bid could mean trouble for users

By Stacy Cowley, IDG News Service
June 06, 2003 04:19 PM ET

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If Oracle succeeds in its bid to acquire PeopleSoft, users are in for a rough transition, industry analysts said Friday.

With Oracle's offer of a lowball price for PeopleSoft, it's not clear how likely the takeover attempt is to succeed. But based on Oracle's culture and past history, it would face significant challenges in meshing its products and operations with PeopleSoft's, observers said.

"The cultural differences at Oracle and PeopleSoft are night and day," said Yankee Group analyst Michael Dominy, in Boston. "I'm skeptical at this point. I would need to see a lot more detailed information from Oracle on how they would do this so they wouldn't [tick] off all the customers that are PeopleSoft customers."

One customer agreed that more time is needed to sort out the implications of the potential acquisition.

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"I can think of all kinds of things that would be positive, and all kinds of things that would be negative. It's just too early," said George Muller, vice president and chief information officer for Imperial Sugar Co. in Sugar Land, Texas.

Oracle is offering $5.1 billion cash, at $16 per share, to acquire PeopleSoft. Company executives say they would stop selling PeopleSoft's products to new users, but continue selling them to current users, while encouraging those users to eventually migrate to Oracle applications. Oracle also intends to incorporate some of PeopleSoft's technology into its own Oracle E-Business Suite. PeopleSoft executives have not commented on Oracle's offer.

Gartner analyst Ted Kempf, in Chicago, said a merger would be a bad thing, from the perspective of PeopleSoft's customers.

"I don't think (Oracle is) interested in developing the products. They just want the support revenue. If you're a diehard PeopleSoft client, you'd have to migrate to Oracle or something else."

The bid likely took PeopleSoft by surprise, both analysts said, noting that PeopleSoft would probably not have proceeded with Monday's announcement of its intended J.D. Edwards buyout if it had seen Oracle's attempt coming.

Whether Oracle is serious in its offer is another open question.

"When you look at Oracle's positioning over the past year, and what (Oracle Chairman and CEO) Larry Ellison has been saying about the market shakeout, it's clear he didn't view PeopleSoft as a long-term survivor," Dominy said.

Oracle's offer, for a 5% premium on PeopleSoft's share price, is a bit of an insult, he said. On the other hand, Dominy said he wouldn't be surprised to see Oracle raise the offer.

Financial analysts are making similar comments.

"We suspect Oracle will need to sweeten the pot to get the deal done," Morningstar analyst Todd Bernier wrote Friday in a research note.

Bernier predicted that if the deal is completed, it will spark a rapid consolidation of remaining vendors in the enterprise applications market, with Siebel Systems another likely candidate for takeover.

Monday's announcement of PeopleSoft's plans to merge J.D. Edwards into its own operations meant that Oracle would be bumped to the number-three position in the enterprise resource planning market, behind leader SAP and the bulked-up PeopleSoft.

The IDG News Service is a Network World affiliate.