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Love Triangle, Ellison Style

June 17

In a series of recent and well-publicized software megamerger maneuverings, PeopleSoft announced its friendly plan to merge with manufacturing software giant JD Edwards, followed by Oracle’s hostile takeover feint at PeopleSoft. The goings-on have inspired the predictable storm of lawsuits and analysts’ chatter, and may drastically alter the software industry landscape.

It all started earlier this month, when Peoplesoft announced its intention to purchase JD Edwards for $1.7 billion in stock. The deal, a leap in software industry consolidation, would suture together a leading HR software vendor with a leading manufacturing integration software player in a bid to compete more effectively with giant German juggernaut SAP and Oracle.

With falling sales (down about 5% in 2002) but stable net profitability (about 8.5% of sales in the most recent quarter), PeopleSoft has been struggling with the global softening particularly for enterprise IT services and products used by Fotruner 500 customers. Among other things, JD Edwards would introduce PeopleSoft to the more less saturated middle market.

In response to the potential consolidation, Oracle later made a hostile bid for PeopleSoft, first with a proposed $5.1 billion, then recently sweetened to $6.3 billion.

Oracle has for years attempted to develop its own applications business in an effort to diversify out of heavy reliance on its dominant DBMS. Faced with slowing demand and pricing resistance, the company would, by buying PeopleSoft, acquire an immediate substantial presence in enterprise-level human resources applications.

Responding to Ellison's party crashing, both Peoplesoft and JD Edwards have responded to Oracle’s bid with lawsuits. JD Edwards in particular has filed suit claiming Oracle is gratuitiously interfering with the merger: they are seeking $1.7 billion in damages.

Peoplesoft CEO Craig Conway, a former Oracle employee himself, called Oracle’s plans "atrociously bad behavior from a company with a history of atrociously bad behavior." While analysts have characterized the dust-up as a deliberate effort by Ellison to sow confusion among PeopleSoft and JD Edwards customers, Oracle's sweetened bid looks sincere.

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