Oracle Offers to Buy Rival PeopleSoft

By Alex Pham

June 7, 2003 12 AM PT

Times Staff Writer

Bringing the drama -- and the mudslinging -- back to Silicon Valley, Oracle Corp. Chief Executive Larry Ellison on Friday lobbed an unsolicited bid for his database company to buy rival PeopleSoft Inc. for $5.1 billion in cash and pledged to discontinue its products.

PeopleSoft Chief Executive Craig Conway, who this week made a friendly offer to buy software maker J.D. Edwards & Co. for $1.9 billion in stock, fired back by likening the flamboyant Ellison to the brutal Mongolian warrior Genghis Khan.

“Obviously it’s a transparent attempt to disrupt the acquisition of J.D. Edwards by PeopleSoft,” said Conway, who characterized the offer as “atrociously bad behavior from a company with a history of atrociously bad behavior.”

Even some analysts doubt the sincerity of Oracle’s bid.

“This is a huge departure in Oracle’s typical strategy,” said Art Russell, senior technology analyst at Edwards Jones in St. Louis. “Everything they’ve purchased so far has been tiny. It makes you wonder what they’re thinking.”

Oracle’s offer of $16 a share represents a mere 6% premium over PeopleSoft’s closing price of $15.11 on Thursday. News of the offer pushed PeopleSoft’s stock up $2.71 to $17.82 -- suggesting that investors expect Oracle to sweeten its bid -- while Oracle’s shares fell 27 cents to $13.09 in Nasdaq trading Friday. Oracle said it would file a formal bid for PeopleSoft on Monday.

Redwood City, Calif.-based Oracle and Pleasanton, Calif.-based PeopleSoft compete in the cutthroat $20-billion global market for software used by large businesses to manage their accounting, customer databases, supply chains and other back-office tasks.

Analysts said the surprise offer could signal a renewed interest in deal making in the technology sector, which has been battered over the last two years by a feeble economy, cutbacks in corporate spending and weak stock market valuations. Once-splashy tech companies responded to the downturn by keeping their heads down and tightening their belts.

Now that the sector is showing some signs of recovery, some firms are resuming their wheeler-dealer ways. In March, computer networking equipment maker Cisco Systems Inc. said it would buy Linksys Group Inc. of Irvine for about $500 million in stock. On Wednesday, hand-held computer maker Palm Inc. agreed to buy Handspring Inc. for about $200 million in stock.

“The deal making certainly has picked up,” said David Yockelson, director of technology research at Meta Group Inc. in Stamford, Conn. “It’s a pretty stark contrast to a year ago when technology spending was frozen or down and most companies were concerned with just getting through the year.”

But analysts cautioned that Oracle’s bid isn’t likely to trigger an avalanche of hostile takeovers. Indeed, they were hard pressed to recall an unfriendly tech merger of comparable size save for IBM Corp.’s acquisition of Lotus Development Corp. in 1995.

“They’re not very common,” Russell said. “Large mergers in technology are not good ideas. Most are horrible ideas. And when you layer on a hostile aspect, it makes it an even worse idea.”

Yockelson suggested that Oracle was less interested in buying PeopleSoft than in disrupting its attempt to buy Denver-based J.D. Edwards. If that deal goes through -- and both companies said Friday that they still were planning on it -- the combined company would displace Oracle as the second-largest maker of business planning software behind SAP of Germany.

“If you look at what this does to customers, it freezes them from making decisions because it creates uncertainty around PeopleSoft,” Yockelson said.

PeopleSoft shares are trading at a nearly 65% discount from their high of $49.94 in early 2001, a common phenomenon in Silicon Valley. It has $1.9 billion in cash on hand that Oracle could recoup, reducing the effective value of the hostile offer to $3.2 billion. Oracle’s stock has declined 72% since its high of $46.31 in 2000.

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Business solutions

Oracle Corp.

Major Product Specialty: Business database management software

Headquarters: Redwood City, Calif.

Chairman & CEO: Larry Ellison

Employees: About 40,000

2002 Revenue: $9.67 billion

2002 Profit: $2.2 billion

Founded: 1977, as Software Development Laboratories

Initial Public Offering: 1986

PeopleSoft Inc.