Video(Editor's note: This article was reported before the Oracle-PeopleSoft deal was finalized, but its main point holds true: Customers of both companies have been and will continue to be affected in a variety of ways.)
It's part soap opera, part high-tech celebrity death match — Silicon Valley's answer to reality TV. As the finale approaches, few are willing to predict the ending, but many agree that however the Oracle-PeopleSoft story resolves, the IT industry will never be the same.
At press time — and that's an important caveat — the fate of the Oracle takeover bid was in a judge's hands, the case riding on the validity of certain poison-pill defenses adopted by PeopleSoft's board of directors.
Whether the judge decides those defenses can stand — which would almost certainly make the deal cost-prohibitive — or must be removed, there's little doubt that customers, competitors, and the larger enterprise-solution vendor community are already feeling the effects of the standoff. The fight has set the stage for a potential wave of mergers and acquisitions throughout the high-tech industry.
That may well be what Larry Ellison, Oracle's flamboyant CEO, had in mind all along. Several weeks before Oracle began its quest for PeopleSoft, Ellison publicly predicted a massive wave of consolidation that he said would eliminate about 1,000 high-tech companies, leaving a few giant category-killers, presumably including his own company. The scenario, he told the Wall Street Journal, "is the end of Silicon Valley as we know it."
For the past 18 months, Oracle — which was initially best known for its database software but now makes a wide range of business applications — has aggressively pursued PeopleSoft, a software company that expanded from its initial base in human-resources software to join Oracle and SAP as a giant in the enterprise resource planning (ERP) market.
The saga began in June 2003 (see "The Battle, Blow by Blow," at the end of this article), when PeopleSoft, which then had $1.9 billion in revenues, announced plans for a friendly acquisition of Denver-based J.D. Edwards, a smaller ERP player. Both parties' boards approved the $1.7 billion deal, which created a combined company with $2.8 billion in revenues and more than 11,000 employees. More significantly, it allowed PeopleSoft to describe itself as "the world's second-largest provider of enterprise application software," after SAP in Germany.
Days later, Oracle, which holds the number-three position in the market, stunned the business world with its takeover effort. Analysts speculated that Oracle was more interested in PeopleSoft's customer list than its products. Oracle confirmed that suspicion by saying it planned to discontinue PeopleSoft's products, although the company pledged to continue supporting existing PeopleSoft customers. Still, Oracle executives presented the deal, ultimately valued at $7.7 billion, as mutually beneficial. "The acquisition of PeopleSoft will immediately make Oracle an even more profitable and competitive company," said Ellison at the time. Oracle CFO Jeff Henley added, "Given PeopleSoft's current prospects and plans, we believe our offer presents compelling value to PeopleSoft shareholders."
To say that PeopleSoft disagreed would be like saying that Mothra was not particularly chummy with Godzilla. The dispute escalated quickly and dramatically. Then-PeopleSoft CEO Craig Conway, a former Oracle executive, denounced the takeover attempt as "horrifically unprofessional," compared Ellison to a schoolyard bully, and charged that Oracle was simply trying to disrupt the J.D. Edwards deal. In quick succession, PeopleSoft twice rejected Oracle's overtures, filed suit against Oracle in a California state court seeking $1 billion in damages, and completed the J.D. Edwards acquisition.
The U.S. Department of Justice stepped in, filing suit to block Oracle's effort, calling it a threat to fair market competition. Oracle's lawyers argued that the company needed to purchase PeopleSoft to compete with other large vendors, particularly Microsoft (see "When It Rains...," Fall). But in September, Chief Judge Vaughn Walker of the U.S. District Court in San Francisco ruled against the government, leaving Oracle free to continue its pursuit of PeopleSoft. A few weeks later, federal regulators announced that they wouldn't appeal the ruling. That same day, PeopleSoft's board of directors fired Conway, citing a lack of confidence stemming from his handling of the Oracle fight, and called company founder David Duffield out of semiretirement to serve as CEO.
A resolution seemed at hand, but last month, a Delaware court began hearing arguments on Oracle's request to invalidate two PeopleSoft antitakeover programs. Meanwhile, last month the European Commission said it would not attempt to block the deal or impose any conditions on it, thus removing the last regulatory hurdle. But PeopleSoft's $1 billion lawsuit against Oracle remains unresolved, with a jury trial scheduled for January. And, of course, Oracle must still convince PeopleSoft's board and shareholders to accept its offer. That effort could become even more challenging, since over time, Oracle has shaved more than $2 billion off its initial offer, citing PeopleSoft's declining stock prices, and warned that its bid could decrease even more. As of October 26, PeopleSoft's board maintained that the $21 per share Oracle was offering was too low.
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