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Hostile. Very hostile

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The normally staid world of the ERP gorillas has been thrown into turmoil this week, writes Fran Howarth, of Bloor Research. First PeopleSoft announced plans to acquire JD Edwards. Then Baan announced its sale and subsequent alignment with SSA technologies. Now Oracle has stated that it will be making an offer on Monday to buy PeopleSoft entirely.

The only one we haven’t heard from yet this week is SAP.

Many will be shocked at the timing of this deal. It coincides so closely with the PeopleSoft-JD Edwards announcement that people may be forgiven for thinking that it is just an over-fast reaction to that proposed merger.

But Larry Ellison, Oracle CEO, stresses that Craig Conway, CEO of PeopleSoft, first approached him a year ago looking for ways to combine the two companies, believing that a combination of the two would be a formidable force in the market. According to Ellison, Conway proposed then that they should either work in partnership, or that Oracle should buy out PeopleSoft.

But the two companies were unable to agree on a deal. Those who have ever listened to Ellison speak would not be in any way surprised by this. He has always maintained that Oracle is the only enterprise applications firm with a pure Internet architecture - as opposed to the fact that PeopleSoft’s applications are built using its own PeopleTools, which Ellison states are proprietary and therefore PeopleSoft’s claims to be entirely Internet-architected are inaccurate.

A joint development partnership was never going to be on the cards. And, according to Ellison, the development of a new company combining the products of the two vendors would not create value for Oracle shareholders.

Instead, Oracle states that it will neither sell PeopleSoft applications to any new customers nor integrate the product lines of the two companies, thus reducing integration risks for customers trying to tie disparate systems together.

Instead, the firm is pledging to offer streamlined, automated migration paths for PeopleSoft's customers to move over to Oracle e-Business suite over time. But this will not be forced on customers - Oracle states that it will extend the period that support will be offered for PeopleSoft release 7 beyond end-December 2003 as envisaged by PeopleSoft.

Automated migration scripts will also allow PeopleSoft 8 customers to migrate to the Oracle suite with minimal disruption to their businesses. Oracle also states that some of PeopleSoft’s developers will be employed as PeopleSoft specialists within the Oracle development team to continue to make improvements to the PeopleSoft products in order to keep them current.

The firm insists that no customer will be forced to migrate to Oracle products against their will and it will decide how long it will continue to support PeopleSoft's products according to the wishes of existing customers. PeopleSoft support staff will be moved over to the Oracle support team as PeopleSoft product specialists.

But what does this really mean for customers? PeopleSoft has always had an extremely loyal following among its clients. Its products stand out from its ERP competitors in terms of the breadth and depth of functionality offered and the deep integration among the products in its suite. The products are also extremely easy to use, with intuitive user interfaces, strong collaborative capabilities and embedded analytics.

Having started out in human resources applications, where it has developed a name for itself as one of the most advanced players, PeopleSoft has taken its deep knowledge of those processes and built them into its other products. For example, the knowledge of human resources that it has built into its procurement and strategic sourcing products make its solutions ideally suited for the procurement of services - an extremely large spend category for many organisations and one where many of its rivals are still building out functionality.

But Oracle will not abandon PeopleSoft’s developers. Instead, it states that the best of the vendor’s development team will be combined with its own resources and the advanced features available in PeopleSoft products will be added to subsequent versions of Oracle’s e-business suite.

According to Oracle, the proposed deal will be an acquisition of consolidation - as opposed to a diversification acquisition, which is the way that it sees the proposed deal between PeopleSoft and JD Edwards. It believes that the overlaps between PeopleSoft and Oracle product lines, as well as the vertical industries targeted, will lead to great savings opportunities, not least by combining and streamlining sales and marketing resources and activities.

By merging with JD Edwards, on the other hand, PeopleSoft would be forced to invest in entering new markets - and this, Oracle believes, is why savings of only $80 million have been identified through that merger.

Yet the offer that Oracle is making is to buy out all outstanding PeopleSoft shares at $16 per share, when the stock of PeopleSoft is now trading above that level, seems to be somewhat hostile. According to some of the financial analysts listening to the call announcing this proposed acquisition, PeopleSoft might be better off rejecting the deal at this level.

Even Oracle acknowledges that some PeopleSoft investors may withdraw their shares. But Oracle counters that it has a history of making such deals work, both technically and financially. Ellison believes that this offer is a safe alternative to what Oracle sees as the more risky acquisition of JD Edwards, and it is at a good price. He states that $16 per share makes good sense for shareholders, and the combined company will make even better sense for customers.

If the deal goes ahead, the combined firm will be able to rival the leader in the enterprise applications space: SAP.

According to Oracle, increased competition can only be good for the market. It points to the fact that Microsoft is investing heavily in this market, although that is rather missing the point in that Microsoft’s sweet spot is in companies with 10 to 15 users of its products, on average. Whilst Oracle and the other ERP gorillas, including SAP and PeopleSoft have attempted to move down the market, they are still predominantly selling to the largest organisations.

Oracle states that it is as yet undecided as to whether JD Edwards will form part of any deal, leaving it wide open for acquisition by another player looking to tackle the as yet under-serviced mid-market.

Perhaps we will be hearing from SAP after all.

© IT-Analysis.com

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Oracle ambushes Peoplesoft with $5.1bn bid
PeopleSoft plunks down $1.7bn for J.D. Edwards
Peoplesoft & JD Edwards: an IBM narrative
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