Why Oracle Spammed PeopleSoft

What's behind the unsolicited bid for PeopleSoft -- and what the hostility means for the ERP industry.

Don’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.

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