J.D. Edwards, PeopleSoft deal came in fits and starts

J.D. Edwards, PeopleSoft deal came in fits and starts By Jennifer Beauprez Denver Post Business Writer

Sunday, June 08, 2003 - Robert Dutkowsky flew out to his son's high school graduation in Boston on Thursday thinking that after eight months of cloak-and- dagger negotiations with PeopleSoft Inc., his work was done.

The next day, just four days after the chief executive of J.D. Edwards & Co. inked a $1.7 billion deal to sell the Denver software firm to competitor PeopleSoft, Oracle Corp. swooped in.

Redwood City, Calif.-based Oracle made an unsolicited $5.1 billion bid to take over PeopleSoft - a transaction that probably wouldn't include J.D. Edwards.

Dutkowsky spent Friday popping in and out of his son's awards ceremony, talking to executives and board members on his cellphone to figure out what to do next.

The disruption was characteristic of the fits and starts that marked the months of negotiations between J.D. Edwards and PeopleSoft. In fact, executives at J.D. Edwards called their deal dead several times before the merger pact was announced at dawn Monday.

Despite the bumps, the merger talks remained shrouded in the kind of secrecy typically seen only in spy movies: at one point unknowing J.D. Edwards workers were told to board planes to California but were not told why they were traveling or what they might do once they arrived.

By May, the courtship spun into all-night bargaining sessions with some firm-footed no-budging stops along the way. The company's pact was finally signed at 4:47 a.m. Monday; 13 minutes later the news was made public.

"In the last eight months, I felt like I have been having an affair," Dutkowsky said of the secrecy. He never even told his wife of 22 years, Lorraine, about the deal.

One critical deadlock ended as the sun set May 31 on the putting green of the Lone Tree Golf Course. Dutkowsky was there alone, taking a needed break after seven days of 20-hour bargaining sessions.

The deal had reached a stalemate. PeopleSoft didn't want to honor commitments made to 190 top-level J.D. Edwards executives for severance payments if the firm changed hands.

Dutkowsky wouldn't budge. Neither would PeopleSoft chief executive Craig Conway.

But then, about a half hour into Dutkowsky's solitary visit to the green, his cellphone rang.

It was Conway, and he'd agreed to compromise and provide adequate compensation to those top executives.

Meanwhile, Oracle - perhaps one of J.D. Edwards' biggest competitors - was cooking up its own plans. The company two months ago hired investment banker Morgan Stanley, presumably to search for acquisitions. And a month after that, Morgan Stanley star analyst Charles Phillips, who closely followed J.D. Edwards, left the firm to become Oracle's executive vice president.

Dutkowsky, since the day he was hired in January 2002, had preached the benefits of first-mover advantage. He and every other executive in the industry knew that growth wasn't going to come any other way than through acquisition. That's why Dutkowsky agreed to meet Conway for the first time on Oct. 31 at a hotel lobby near Centennial Airport.

Dutkowsky and Conway sat with their backs to the door, munching free, stale doughnuts. A couple of truckers sat nearby.

At the time, Dutkowsky, 48, had held the CEO reins at J.D. Edwards for just 10 months. He spent 20 years at IBM Corp., including time as the right-hand man to Big Blue's former CEO Lou Gerstner. A year earlier, he had orchestrated the sale of struggling equipment manufacturer GenRad Inc. to competitor Teradyne Inc.

Conway, called the Clint Eastwood of software for his blunt, tough-guy style, had orchestrated a turnaround at PeopleSoft just two years before. He climbed the ranks at Oracle Corp. before being forced out in a 1992 power struggle.

Conway and Dutkowsky talked about vacations, kids and, eventually, philosophies on winning customers, recruiting good people and empowering employees, and how to make money when no one was buying software.

"It was uncanny how aligned we were when we started to probe each other's companies," Dutkowsky said.

That evening, the J.D. Edwards chief walked into the office of his chief financial officer, Richard Allen, and closed the door.

Allen, who had been crunching numbers for J.D. Edward's quarterly earnings, perked up. He knew a closed door meant important business.

For the past five years, the two companies toyed with the possibility of merging. Technology was the sticking point preventing a deal in the past, since neither founder wanted to give up their software architecture for the other's in a merger.

"It's like me calling your kid ugly," Dutkowsky said. "It's like, 'Mine is better than yours."'

At one point, the talks got serious. But J.D. Edwards executives weren't confident that PeopleSoft had it together.

J.D. Edwards wasn't the only firm with which PeopleSoft was flirting. Just a year ago, Conway also met with Oracle executives to discuss a potential joint venture. Oracle, which makes other database software, talked about getting out of enterprise software - the sole specialty of J.D. Edwards and PeopleSoft.

Oracle CEO Larry Ellison on Friday claimed Conway talked about selling both PeopleSoft and Oracle products. It may not have jived with Oracle, which has long had an acrimonious relationship with PeopleSoft, marked by a tense personal relationship between Ellison and Conway.

Sharing is not the Oracle way, said Tom Cook, senior with The451, a San Francisco technology research firm. "It's definitely, 'Our way or forget it."'

Dutkowsky saw things differently. His first meeting with Conway left him hopeful. He needed the financial momentum to get a deal past the companies' technologists. So he turned first to Allen, highly respected in financial circles.

"After several seconds of careful thought, I said, 'I think it makes sense to take the next step,"' Allen said. Meanwhile, back at PeopleSoft's headquarters outside San Francisco, Conway walked into the office of his own CFO.

"I met with Bob, and it seems like it could work," Conway said. "But I doubt we could get it to work out."

Nonetheless, three weeks later Conway and PeopleSoft CFO Kevin Parker were on their way back to Denver. They told no one where they were headed.

Executives used code words to discuss the merger. The deal was called "Geyser," named after the Crystal Geyser brand water bottles that sat in front of board members at one meeting in November.

J.D. Edwards was "Jersey" and PeopleSoft was "Palomino." "You never left a document anywhere," Parker said. "You never sent an e-mail anywhere. You never said a name anywhere."

Eventually, more executives were brought "over the wall," meaning they were clued into the merger talks after long lectures on securities law and the promise that they would be fired if they breathed a word to anyone.

"I have been in deals where word got out and they were rumors," Parker said. "It's unsettling for employees and customers."

The hush-hush mantra nearly collapsed one Sunday in January, when six PeopleSoft executives met with J.D. Edwards people in a Denver hotel.

For more than four hours, they shared information on marketing, sales, technology and strategy. All the while, they glanced out the window, watching the sun set and a snowstorm approach.

"We were nervous about getting stranded," Parker said. "None of us were supposed to be out of town. My wife knew I was going out of town, but she didn't know where I was going."

Towards the end of the deal making, a handful of workers from J.D. Edwards were handed plane tickets and told to fly to California. They would receive instructions on what to do next when they arrived.

They were ushered to a data center not far from PeopleSoft's headquarters and asked to sign nondisclosure agreements. Then, the workers sifted for days through boxes of PeopleSoft's utility bills, customer contracts and employee contracts under the careful watch of a security guard.

Workers from PeopleSoft pored through J.D. Edwards documents inside a deserted high-rise a few miles away from the company's Denver Tech Center campus.

"You almost felt guilty," Dutkowsky said. "These people are in town. You feel like you should take them to dinner or something. But it was very antiseptic."

Both teams were looking for anything fishy about the other and wanted to pull the plug before they divulged too many trade secrets. J.D. Edwards wavered on when or whether to divulge employee names or lists of customers.

"We talked about what was the point of no return," Dutkowsky said. "You're kind of giving the enemy the keys to the kingdom. We had to figure out if it was really worth it."

The deal hit many roadblocks. For three months, Conway and Dutkowsky haggled over price. And at one point in March, Dutkowsky called the whole thing off.

"This isn't going to work," Dutkowsky said he told Conway as he passed through Toronto's Pearson International Airport.

When PeopleSoft's stock dropped to $16 from about $18 a share, the deal no longer made sense for J.D. Edwards shareholders, Dutkowsky said.

Dutkowsky said he and his team had no idea Oracle was a looming threat. But he knew time was of the essence.

Six weeks later, J.D. Edwards stock fell from $13 a share to $11. Not long after that, the company reported a $393,000 loss in the second quarter, reflecting sagging demand for technology by corporate customers.

It was time to get the deal done. The deal stopped and started again last Sunday and Monday as executives haggled over breakup fees and intellectual property rights.

Dutkowsky, who had just a few hours sleep over the weekend, was elated when the secrecy was finally over.

On Tuesday, Dutch software maker Baan and SSA, a firm in Chicago, announced that they too would merge. And on Wednesday, HandSpring and Palm revealed their own marriage plans.

But four days later, Oracle's Ellison made his own move. He may not have been first to the bargaining table, but he may be the one who cinches the deal.

"You never count on it being done until it's actually done," PeopleSoft CFO Parker said Thursday.

Brash Bid for Peoplesoft Mirrors Oracle Chief's Lofty Ideas

By Steve Lohr
The New York Times

    Lawrence J. Ellison, the 58-year-old chairman of Oracle, whose hobbies include yachting and piloting jet fighter planes, has earned his reputation as one of the most flamboyant and outspoken executives in corporate America.

    His brash public pronouncements -- whether vilifying a rival like Microsoft or declaring that Silicon Valley is finally growing old -- tend to be taken with a handful of salt. Oh, that's just Larry, is a common reaction in the industry to what are seen as Ellison's antics.

    Oracle's $5.1 billion bid earlier this month for PeopleSoft, a maker of business software, seems to bear some of the eccentric touches so characteristic of Ellison. It is a rare hostile takeover attempt in the software business, the price looks low, and Ellison has expressed little interest in PeopleSoft's products.

    But regardless of whether it succeeds, the bid reflects a step in Ellison's plan to make Oracle the dominant presence in the market for software used by corporations. And his strategy comes straight from the playbook of his longtime adversary, Microsoft.

    Ellison's goal is to achieve in corporate data centers what Microsoft has accomplished with desktop personal computers. Microsoft's business began with the operating system -- first MS-DOS and then Windows -- a basic technology platform on which software developers write applications. Microsoft then developed personal productivity applications software for word processing and spreadsheets. But Microsoft did not dominate in those applications until they were bundled and aggressively priced in a suite of programs called Microsoft Office that worked best with Windows.

    Ellison sees his company's mainstay product, the Oracle database, as the corporate computing equivalent of the Windows operating system. On top of the database run a series of what are known as enterprise applications, which corporations use to automate a wide range of business tasks like handling accounting, procurement, customer relations and human resources programs.

    In recent years, Oracle has been gradually building up its own stable of enterprise applications, which it calls the Oracle e-Business Suite. PeopleSoft, whose software is used to manage human resources and other tasks, would enlarge Oracle's corporate applications business. Ellison has said he is most interested in PeopleSoft's customers, and someday having them move their business over to Oracle products.

    Ellison explains his strategy in terms of the Microsoft experience -- which means putting together an integrated collection of software applications as the way to prevail in a given market.

    "Microsoft was busily competing with Lotus in spreadsheets and it was unsuccessful," Ellison said in an interview a few weeks ago. "It was competing against WordPerfect in word processing, and Microsoft was unsuccessful. Eventually, Office came out and Microsoft dominated."

    "There are just these natural synergies between the database and the applications, like there are natural synergies between the desktop operating system and personal productivity applications," Ellison continued. "And that's our strategy -- be a large player in both of those sectors, and gain tremendous economies of scale as a result that no one else really can gain."

    Whether Oracle's bid for PeopleSoft succeeds or fails, the Ellison strategy makes sense, according to industry analysts. The corporate software business does appear ripe for consolidation. And one way corporate customers are trying to curb spending on technology is to deal with fewer suppliers and fewer kinds of software.

    "Larry Ellison makes an eloquent argument that corporate software is way too complex with way too many suppliers in the corporate kitchen, so to speak," said Peter Kastner, the director of research at the Aberdeen Group, a consulting firm.

    Ellison is by no means the only software executive making that argument. SAP AG, a big German company, is the market leader in business software. Its stronghold is in software for accounting and procurement. But it is also gaining strongly as a vendor of human resources programs, where PeopleSoft has done well, and in customer relationship management software, where Siebel Systems is the leader.

    Hennig Kagermann, the chief executive of SAP, expects further consolidation in the enterprise software business. But in his view, the inevitable consolidation should not extend to include database software. "Oracle is wrong in trying to put everything on one database," Kagermann said.

    Oracle may be pursuing a Microsoft-like strategy, but the corporate market is more diverse and less likely to be dominated by a single company. Microsoft's Windows and Office hold more than 90 percent of the markets for PC operating systems and desktop software, respectively. By contrast, if Oracle acquires PeopleSoft, it will hold about 11 percent of the market for business software that handles accounting, procurement, and other tasks, which had sales of $23.5 billion last year, according to the International Data Corp., a research firm. SAP, the leader in that market, has an 18 percent share.

    Companies have to do a lot of costly modifications to basic software and often pay computer services specialists, like IBM's global services unit, to fine-tune programs to meet the needs of their customers. That, analysts say, makes it more difficult for companies to switch, say, from PeopleSoft software to a competing one from Oracle or SAP.

    Accordingly, analysts say, the consolidation trend may well be more gradual in the corporate software market. "The trend is certainly toward consolidation, but it is different than Office and shrink-wrap PC software in some important ways," said Henry Morris, an analyst at International Data.

    Ellison is certain to be headed toward a confrontation with Microsoft in the corporate applications market. The two companies, to be sure, already compete fiercely in corporate database software, where Oracle competes with Microsoft's SQL database.

    But in corporate applications, Oracle and Microsoft are headed toward each other from different directions -- Oracle from the top down, with its big corporate users, and Microsoft from the bottom up, with its strength in small businesses and control of the desktop. In the past few years, Microsoft has acquired Great Plains and Denmark's Navision. Both make business software, but mainly for medium-sized businesses. Oracle, by contrast, sells to big corporations.

    "But you can be sure that Microsoft is heading inexorably upstream," said Kastner of Aberdeen. "And keeping Microsoft from gaining a greater share of the data center market is a crucial strategic objective for Oracle."

TALES OF THE TAPE: Mining Money From Software Maintenance

.
By Marcelo Prince
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Even if Larry Ellison fails to take over PeopleSoft Inc. (PSFT), he may have pulled off a tougher feat: getting investors to look at software companies differently.

The Oracle Corp. (ORCL) chief executive has challenged the notion that software is a fast-growing business that merits a premium valuation. Rather, the thinking goes, PeopleSoft and others - such as BMC Software Inc. (BMC) and Compuware Corp. (CPWR) - are mature companies that can be stripped down and mined for profits.

Some investors and analysts agree the industry is ripe for consolidation. More importantly, they say Ellison's $6.3 billion gambit has put a spotlight on an asset lost in Wall Street's shadows: maintenance revenue.

"Everyone has grown up in software hearing new product sales - the license (revenue) line - is the only line item that means anything," says Marty Shagrin, an analyst at Victory Capital Management in Cleveland. But investors "overlook the earnings power maintenance brings and the cash it throws off."

The key measure of a software company has long been license revenue. These fees, which are usually collected when products are first sold, reflect new business and are highly profitable. Maintenance revenue comes from customers who want ongoing technical support and product enhancements. These contracts are smaller and less lucrative, but renewed as long as the software is used.

Investors typically focus on license revenue because they can grow quickly and drive the earnings surprises that justify the valuations of most software stocks. But with license sales shrinking, "sentiment has shifted and people are looking at other ways to play long ideas," says a hedge fund analyst, who requested anonymity.

Strip-Mining In The Software Industry

In what would have been heretical a few years ago, some brokerages are highlighting maintenance as a dependable, profitable business. In a research report last month, Goldman Sachs studied the profits that could be generated at 22 software makers by shutting down their operations and mining the maintenance revenues.

"Investors may increasingly strip-out this annuity-like (revenue) stream as an alternative measure of value," which is the more stable and long-lived aspect of a software firm's business, wrote Goldman analyst Rick Sherlund in his report.

Maintenance often accounts for a third of a company's revenue and can enjoy operating margins of 75% or more, analysts say. It tends to be more stable than licenses because customers need technical support and product fixes, even when they don't want new software.

Of course, maintenance only comes from selling new licenses, so "at some point you want to see license revenue growth," says Reema Shah, software analyst at J.W. Seligman & Co., a money management firm. Otherwise, a vendor risks losing clients and recurring support fees.

With license sales in a two-year drought, maintenance has become a bigger piece of the pie. For example, PeopleSoft had $738 million in maintenance revenue generating $288 million in after-tax profits in the 12 months ended March 31, Goldman Sachs estimates. (Its license fees were about $478 million in the same period.)

The Pleasanton, Calif., firm isn't the only software company with a large installed customer base that generates sizable maintenance revenue. Of particular interest, some investors say, are companies with older technology and thousands of entrenched customers, like BMC and Compuware.

Both companies warned of disappointing June-quarter results last week and their stocks have lost some of their recent luster. BMC, which traded under $11 in October and rose near $20 in February, closed Wednesday at $14.75. Compuware, which traded under $3 a year ago and rose above $6.50 last month, closed at $4.98.

BMC and Compuware have struggled with shrinking license revenue for several years, but they still collect more than $100 million in maintenance each quarter. Bulls argue the maintenance, which will continue for years, is worth more than each entire company currently trades for.

BMC had $636 million of maintenance revenue in the fiscal year ended March 31, up from $576 million the previous year. Compuware had $412 million of maintenance revenue in the 12 months ended March 31, down from $434 million the previous fiscal year.

"You could throw the license business away and more than justify (the) current market capitalization," says Bert Hochfeld, analyst at Montauk Capital Markets, an institutional brokerage. He rates both stocks at buy and doesn't own them. His firm doesn't have investment banking ties with the companies.

BMC has an enterprise value (market cap less net cash) of about $2.4 billion, while Compuware sports an enterprise value of about $1.8 billion. Both valuations are less than two times annual sales.

'Hated' Stocks With Hidden Assets

BMC was founded in 1980 and has more than 450 software products used to manage corporate databases and run mainframe and server computers. The Houston company has struggled with slack demand and inconsistent financial performance in recent years. Last week, BMC warned it would post an unexpected loss in its June quarter and announced another restructuring.

"It's a pretty hated stock," admits Shagrin of Victory Capital, which owned 3.9 million BMC shares, or a 1.7% stake, as of March 31. But its maintenance revenue has grown 10% in each of the last two fiscal years.

Compuware has also struggled in recent years as big customers, like Ford Motor Co. (F), have pared technology spending. The 30-year-old company sells software used to test and manage software running on large computers and hires out consultants. On Friday, the Detroit company warned that June-quarter revenue dropped to its lowest quarterly level since 1997.

"If one is invested in Compuware, it is for the value of the maintenance revenue," says Sameer Bhasin, analyst at Okumus Capital, a New York hedge fund. The firm is one of the company's largest investors with about 24 million shares, or a 6% stake, as of March 31.

Bhasin believes Compuware enjoys very high operating margins, perhaps 90%, on its maintenance business because, like BMC, it is supporting established products that are difficult to replace and have few competitors.

Like some BMC supporters, Bhasin argues Compuware could be strip-mined and it would be worth more than the sum of its parts. "Just the maintenance stream of this business is worth $3 billion, which is lot more than what the stock is trading at," he says.

BMC, Compuware and other mature software vendors should swallow their pride and "stop chasing the holy grail of license growth," says Shagrin. Instead, they should scale back spending on sales, marketing and research and "let maintenance drive earnings."

Such changes may not support the premium multiple typically awarded to software companies, but they would produce higher earnings that, in turn, could lift the stock price, Shagrin argues. "We're talking about (current) valuations that aren't pricing in a lot of growth anyway," he says.

(Marcelo Prince covers the software industry for Dow Jones Newswires.)

-By Marcelo Prince; Dow Jones Newswires; 201-938-5244; marcelo.prince@dowjones.com

(END) Dow Jones Newswires

07-17-03 1400ET- - 02 00 PM EDT 07-17-03

Trial turns into bid dance PeopleSoft says maybe in negotiation; Oracle lowers its offer

It is common for a merger battle to involve a healthy dose of public posturing on issues such as price and logistics. But while such maneuvering typically plays out in the media, or during analyst forums, it's rare to see it happen in a courtroom.

But that's exactly what happened during the past two weeks, as Oracle Corp.'s hostile bid for PeopleSoft Inc. moved to Delaware's Chancery Court, where the two sides were supposed to debate the legality of the Pleasanton firm's anti-takeover defense.

Instead, the bitter rivals engaged in a bizarre, de facto negotiation on the witness stand. PeopleSoft directors testified they are willing to discuss an offer, hinting that it would be amenable to something higher than the current $21 per share. Oracle executives, including the firm's outspoken chief executive, Larry Ellison, hinted they might actually reduce the price of their offer. The two sides wrapped up proceedings, and a judge could rule anytime in coming weeks. In the meantime, investors and analysts are left to digest the latest, strange twist in this 16-month saga.

Of course, most everything about Oracle's unwanted takeover bid for PeopleSoft has been bizarre, from the nasty personal volleys to the high- pitched court battles. This most recent tit for tat, in the Delaware courts, cemented the dispute as a one-of-a-kind business battle that has lasted much longer than anyone expected -- but that some believe marks a new era of consolidation in the software industry.

"This (battle) is really a rare occurrence," said analyst Robert Stimson of Banc of America Securities, "but one I think that's extremely important to the chapter of how the software book will be written."

The trial -- testimony wrapped up Friday -- is focused on Oracle's bid to have a court invalidate PeopleSoft's anti-takeover measures, including a "poison pill" provision that allows PeopleSoft's board to sell additional shares at a discounted rate to a select group.

Oracle also opposed a money-back guarantee program that PeopleSoft began to reassure new customers worried about a takeover.

In the latest twist to the bitter dispute, Ellison and one of his top lieutenants suggested in court they are considering offering less money for the beleaguered software firm.

Their statements stunned many analysts and industry experts who had expected, after strong signals from PeopleSoft that it finally was willing to negotiate, that Oracle would raise its price in a bid to woo the target company's board of directors.

Earlier this month, PeopleSoft's board had fired chief executive Craig Conway, who was seen as being too inflexible in his opposition to Oracle. Then, board member Steven Goldby testified that he would be willing to talk merger with Oracle if the "price is right."

These developments led many investors to believe a merger was imminent, and pushed PeopleSoft's stock higher than Oracle's current offer of $21 per share.

Many analysts expected Oracle to raise its price to seal the deal.

Instead, Ellison and company Co-President Safra Catz argued for lowering the price, saying PeopleSoft's business performance has deteriorated significantly and the outlook for the corporate tech market remains uncertain.

Was Ellison just posturing as both firms gear up for formal negotiations? Or was he truly intent on showing no mercy for a rival perceived as being down on its knees after a grueling 16-month war?

"I think Larry is just posturing," said Stimson who does not own Oracle or PeopleSoft stock.

Some analysts speculated that Oracle was deliberately talking PeopleSoft's stock down.

PeopleSoft shares had dropped below Oracle's offer to $20.85 at the end of Friday's regular trading.

In an apparent response, a PeopleSoft executive reaffirmed in the trial that Oracle's current offer is too low and added that the company may be open to negotiating a sale to another party -- either another company or an investor group.

"They're negotiating this in a public forum via the trial, and I think it's interesting that these two sides haven't really sat down and talked to each other directly," said analyst Paul Hamerman of Forrester Research. "They're still really far apart in terms of negotiating."

Sydney Finkelstein, a professor of management at the Tuck School of Business at Dartmouth University, said Oracle's moves were surprising but highlighted Ellison's aggressive business style.

"It's kind of like when you have a company like PeopleSoft trying to play hard to get and all of a sudden shows some interest, and you back off a little bit," said Finkelstein.

"It's just hardball all the way through," he added. "I think it was unusual, and I think the reason it happened here is Ellison is a hypercompetitive person and Oracle is a hypercompetitive company. ... It's classic Ellison: Shove it in your competitor's face."

Tom Briggs, a Texas corporate attorney, cited legal reasons for the statements made by both sides in the trial.

Briggs said PeopleSoft may be under pressure to defend the controversial measures and its earlier decisions not to negotiate with Oracle. That's because a board is legally required to consider all options, even in the face of a hostile takeover.

Referring to Goldby's statement about being open to talks, Briggs speculated: "Lawyers told him to say that because you have to act reasonably in light of the threat posed. You can't just say, 'We won't talk to him no matter what the price is.' Lawyers would have killed him if he'd said that."

On the other hand, he added, Oracle also can't appear to be rushing to close a deal. "They have to be careful about recklessly overpaying."

Patrick McGurn, senior vice president at Institutional Shareholder Services, which advices big investors in proxy battles, underscored this point, saying, "Oracle wants to pay the lowest possible price, and PeopleSoft wants to get the highest possible value. That's a constant source of friction in these things." Analyst Albert Pang of International Data Corp. said the battle is bound "to remain very murky for the time being."

"It's like a very tumultuous affair between two very unpredictable lovers, " said Pang, who does not own Oracle or PeopleSoft stock.

In some ways, the Oracle-PeopleSoft battle is part of the changes taking place in the tech world -- changes Ellison had predicted and vowed to lead.

Gone are the days of young engineers starting businesses in garages and coming up with products that would fit into cozy niches in a growing industry. Much like the trail he blazed in the 1970s that started a database revolution, Ellison could now be signaling an era of cutthroat consolidation.

"Silicon Valley has this point of view of being forever young," Ellison testified in the antitrust trial over the PeopleSoft bid in June. "But Silicon Valley has been here a long time. There's a lot of consolidation going on."

In his testimony, Ellison portrayed the bid for PeopleSoft as a fight for survival for Oracle, which is facing stiffer competition not just in database, the company's core product, but in other arenas and from giants such as SAP of Germany, IBM and Microsoft.

"We wanted to be a survivor and a consolidator," he said. "The only way was through an acquisitions strategy."

Evidence presented at the trial shows that Oracle executives, like their rivals, see the competition as nothing less than a war.

"I knew we had a 'Kill SAP' program," Oracle Co-President Catz testified. "And a few others. It's a little military, but our guys get excited."

Stimson of Banc of America Securities underscored the importance of the Oracle-PeopleSoft saga in the history of software.

"I believe we'll see more hostiles as the group consolidates," he said. "My take is the software industry has to consolidate. This is just phase one of many more to come."

E-mail Benjamin Pimentel at bpimentel@sfchronicle.com. Page J - 1 URL: http://sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2004/10/17/BUG5299VIH1.DTL

Oracle to close PeopleSoft purchase
Company will be 2nd largest business software firm

By Michael Paige, CBS.MarketWatch.com
Last Update: 5:15 PM ET Jan. 7, 2005

LOS ANGELES (CBS.MW) -- Taking the final step toward putting a drawn-out struggle for control of PeopleSoft Inc. behind it, Oracle Corp. said it will close its $10.3 billion acquisition of its rival on Friday, creating the world's second-biggest maker of business software.

Redwood Shores, Calif.-based Oracle (ORCL: news, chart, profile) overnight said more than 97 percent of PeopleSoft's outstanding shares were tendered in favor of its $26.50 per share offer. The companies are proceeding quickly with integration, Oracle said.

Oracle's stock gained 11 cents, or 0.8 percent, to close the session at $13.33. PeopleSoft's shares stood at $26.49, up 1 cent from the prior close.

PeopleSoft (PSFT: news, chart, profile) vigilantly fought off Oracle's overtures, asserting that Oracle's initial offer of $16 a share undervalued its true worth. Last month, however, PeopleSoft finally acquiesced to a sweetened offer.

In a recent regulatory filing, the company said it would need up to $10.5 billion to purchase the outstanding shares and pay estimated fees and expenses related to the offer.

Oracle hopes the acquisition of its rival, based in Pleasanton, Calif., will help it better compete with the No. 1 player in the corporate software market, Germany's giant SAP AG (SAP: news, chart, profile).

The merged company won't necessarily have an easy time making headway against its rival, however. U.S.-listed shares of SAP gained over 1 percent on Friday to close at $43.36 amid speculation that the company may top fourth-quarter hopes in an earlier-than-expected report and raise its 2005 outlook. See full story.

The final step in Oracle's deal for PeopleSoft followed a bitter battle that spanned 18 months. The fight was marked by fierce courtroom testimony and what often appeared to be personal jabs between senior executives.

The struggle ultimately led to the ouster of PeopleSoft's former CEO Craig Conway, who was sacked, in part, for making misleading comments to financial analysts about the impact of Oracle's pursuit. Dave Duffield, PeopleSoft's co-founder, who had returned to replace Conway, left the company last month, after the deal was struck.

Oracle said it accepted for payment some 388.7 million outstanding shares of PeopleSoft, which will now become its wholly owned subsidiary. By securing more than 90 percent of the shares, Oracle was able to carry out an expedited closing on the acquisition and avoid a lengthy process.

A Webcast is planned for Jan. 18 to mark the launch of the combined company and detail the integration.

In a letter to customers, Oracle co-presidents Charles Phillips and Safra Catz recently reiterated the company's pledge to support and release a next version of PeopleSoft software.

Meanwhile, Oracle plans by Jan. 14 to notify employees who will be laid off as part of the merger.

Indeed, the fate of many of PeopleSoft's 12,000 employees could be at stake. In an internal Oracle document presented during legal proceedings surrounding the pursuit, it came to light that Oracle at one time had drawn up plans that would cut some 6,000 PeopleSoft workers after a merger.

Oracle's integration efforts aim to "ensure that the companies are combined in an effective and efficient manner, with sensitivity towards the impact on employees," it said in merger-related information posted on its Web site. Michael Paige is a reporter for CBS MarketWatch in Los Angeles.

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