VideoDon't look now, but the M&A landscape is starting to heat up in the tech sector.
With stock prices on Nasdaq on the rebound, it appears that technology companies are ready to go get other companies while the go-getting's good.
On June 4, personal digital assistant maker Palm Inc. announced it is acquiring rival Handspring in an all-stock deal valued at about $170 million. A Palm/Handspring duo should have a better chance of competing in the PDA space with large rivals such as Dell, Hewlett-Packard, and Sharp. And the acquisition moves Palm into the PDA/cell phone space, which some see as the future of handheld computing. By acquiring Handspring, Palm acquires Treo, Handspring's popular PDA/cell phone combo. The announcement also helped boost both Palm and Handspring's share prices by about 14 percent
Of course, the deal everybody's talking about is Oracle's unsolicited bid for ERP rival PeopleSoft, which, depending on who you listen to, is either 1) the greatest tech strategy ever conceived, or 2) the investment banking equivalent of spam.
In case you've been in a nunnery lately, here are the details: Oracle came in with a surprise $5.1 billion, all-cash offer for PeopleSoft on June 7 -- just five days after PeopleSoft announced it was acquiring mid-sized ERP specialist J.D. Edwards for $1.7 billion.
Apparently, PeopleSoft CEO Craig Conway was not amused by the $16-per-share offer from Oracle CEO Larry Ellison. In an interview with Dow Jones just days after Ellison announced the offer, Conway labeled Oracle's last-minute bid "atrocious bad behavior from an atrociously bad company." He should know: Conway worked at Oracle for eight years.
In the interview, Conway also said directors at the Pleasanton, Calif.-based PeopleSoft were appalled by Oracle's action. "It's like having a wedding and [Oracle CEO] Larry [Ellison] showing up with a shotgun trying to get someone to marry him," he said. At one point, he told Dow Jones that "people will see through this for what it is: a ludicrous concept with malicious intent."
While such a response might be the PeopleSoft CEO's way of meeting his fiduciary responsibility to shareholders -- that is, driving up the offer price -- the hostile bid was not enthusiastically received by J.D. Edwards' management, either. That's not surprising, since the takeover attempt not only put the PeopleSoft/Edwards deal on hold, but overshadowed all the positive press J.D. Edwards management had been receiving for agreeing to the merger in the first place.
J.D. Edwards CEO Bob Dutkowsky claimed Oracle's bid for PeopleSoft could possibly violate U.S. and European antitrust laws. "Oracle's elimination of a competitor, its products, and their ongoing development would reduce customer choice and product support, and would leave many customers with greatly diminished options," said Dutkowsky. "This harm to customers is exactly what antitrust laws are intended to protect against."
Certainly, regulators at the FTC will take a long hard look at the Oracle bid -- as well as PeopleSoft's offer for J.D. Edwards. That last point may have escaped PeopleSoft's management, which last Friday looked to win over shareholders at J.D. Edwards by sweetening its all-stock offer to a half-stock, half-cash offer.
J.D. Edwards stockholders may need some winning over. While the company's management has been singing the praises of the PeopleSoft merger, the fact is, shareholders may be more than a little spooked at the thought of being acquired by a company that might be acquired itself -- and by the dreaded Oracle, no less.
Hoops, Skirts
At the same time, tech-watchers and Oracle stock holders (I fit both those categories) are still trying to sort out what's behind Ellison's seemingly machiavellian pursuit of PeopleSoft. Generally speaking, unsolicited bids are verboten in the software world. As SAP board member Leo Apotheker told The Financial Times last week, "Software companies do not make hostile bids. Execution is very difficult.
Then again, it appears that Oracle is interested in a different sort of execution. In its bid for PeopleSoft, Ellison & Co. made it clear that Oracle would continue to service PeopleSoft products -- but would not likely bring out new versions of PeopleSoft applications. In other words, bye-bye PeopleSoft.
Such a strategy speaks volumes about the difficulties ERP players are having growing their businesses. As Paul Birch, CEO of business software maker Geac, points out, "Oracle's bid is an admission that it's easier to acquire customers than win them over in the new sell-cycle."
Why is that? Well, for starters, Birch says "there's a saturation of the high-end ERP market." Further, ERP rollouts are so costly -- and often so protracted -- that corporate customers aren't generally willing to go through the painful process very often. In fact, many users seem willing to jump through hoops to stick with their ERP systems. They'll tweak the software, or upgrade it, sometimes they'll even reinstall it -- anything to skirt another deployment.
Moreover, a CFO who signs off on a large ERP rollout isn't real likely to recommend a switch to another vendor's product two years down the line. That, too, makes it hard for ERP vendors to win over new customers.
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