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For the past 18 months, Oracle has been locked in a battle to acquire rival PeopleSoft involving courtroom drama, poison pills, personal enmity and, recently, the departure of PeopleSoft's CEO Craig Conway. In a move that many saw as the confirmation that PeopleSoft would agree the sale to Oracle, chairman and founder of the company Dave Duffield stepped back in to the company to act as CEO in October 2004.

Announced this Monday, the deal is expected to be finally consummated at the beginning of next year and will see Oracle paying $26.50 per share, amounting to a total of $10.3bn.

When the hostile bid by Oracle was first announced 18 months ago, the amount proffered was just $16 per share. At that time, this was slightly above the price at which PeopleSoft shares were trading, but it was also a time when enterprise application vendors were experiencing lacklustre sales of software licences. Since then, fortunes have improved and both vendors have been showing improved results. In just October 2004, Oracle's raised its offer to $24 per share, which it insisted was the highest that it would go. This bid was resisted, even though the majority of PeopleSoft shareholders had agreed to tender their shares, but many felt that management changes at PeopleSoft meant that a deal would be just around the corner.

When the hostile takeover of PeopleSoft by Oracle was first announced, Oracle stated that it would neither sell new PeopleSoft applications to customers, nor would it integrate the product lines of the two companies. But its stance has since softened and it announced early November 2004 that it intended to release a new version of its formal rival's products - PeopleSoft 9 - which will run on Oracle's technology infrastructure to allow customers to benefit from one single underlying platform.

But when the takeover bid was originally announced, PeopleSoft had just itself announced that it would acquire rival JDEdwards. PeopleSoft has now taken over the product offerings of JDEdwards and, with some enhancements to capitalise on advanced features available in different products, now has three separate lines of products. Oracle has now stated that it will continue to develop JDEdwards products separately to those of Oracle, but four separate product lines will be confusing in the short term at least.

Oracle has always stated that it needed to acquire rival PeopleSoft in order for it to be able to compete effectively with rivals Microsoft and SAP, and this is a point with which the EU authorities concurred. According to a recent conference call in which Larry Ellison, CEO of Oracle, spoke, reductions are to be made in R&D expenditure of the combined company in the region of $150m to $200m - although Ellison has said that Oracle will invest in applications development and customer support.

It is also intending to slash spending on sales on marketing - although it has stated that it intends not only to retain the best PeopleSoft salespeople, but that the merger of the operations of Oracle, PeopleSoft and JDEdwards will lead to a growth of around 50 per cent in its sales headcount for its business applications software business.

So where does that leave its marketing? Oracle will need to invest heavily in explaining clearly how the new company will shape up and provide a viable alternative to rival SAP. It needs to clearly define its competitive positioning going forward. Customers whom I spoke to at PeopleSoft's recent annual show in London - who all declined to be named - stated that they had found the whole merger process to be a distraction to their business. One even stated that most of the peers he had spoken to among PeopleSoft customers already had a Plan B in place should the merger be successful - and, since most had evaluated, and rejected, Oracle applications when they had originally decided to license the technology that they are now using, Oracle was not an option.

Perhaps these customers are isolated cases, carefully nurtured by PeopleSoft to give these answers to analysts. Perhaps not - especially since these opinions were expressed when no PeopleSoft spokespeople were in the room. Either way, Oracle needs to provide clear guidance of its intentions with its products and positioning earlier rather than later if it is to avoid customer churn and the risk of losing prized resources.

Copyright © 2004, IT-Analysis.com

Related stories

The PeopleSoft vs. Oracle clash
PeopleSoft says 'Yes' to $10bn Oracle offer
PeopleSoft customers learning to love Oracle

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