Oracle Bids $5B For Software Rival

Oracle and PeopleSoft merger
Oracle Corp. launched a $5.1 billion hostile takeover bid for PeopleSoft Friday to dramatically increase its share of the business software market, sending PeopleSoft shares and tech stocks soaring.

The vale of PeopleSoft shares jumped after Oracle CEO Larry Ellison made an offer of $16 a share for Pleasanton, Calif.-based software company.

Oracle's offer represents a 5.9 percent premium to PeopleSoft's closing price.

Ellison spoke highly of what would result from an Oracle-PeopleSoft merger. "The acquisition of PeopleSoft will immediately make Oracle an even more profitable and competitive company," Ellison said in discussing the deal.

Ellison said the idea to buy PeopleSoft was originally proposed about a year ago by PeopleSoft CEO Craig Conway. Ellison said that for various reasons, the purchase was not feasible at that time.

Jeff Henley, Oracle's chief financial officer, said he expects the PeopleSoft acquisition to increase Oracle's earnings per share from the first combined quarter.

"We expect there to be substantial cost savings and minimal business integration risk," he added in a statement.

Richard Davies, managing director at Needham & Co., said that the deal is probably being done, in part, out of a realization that significant revenue growth for software companies is not going to come simply from trying to take market share from competitors.

"It's really hard to grow (revenue) because there's no reason for customers to switch (software) vendors at this point, Davies said. "Big companies realize this, and now investors are just starting to come out to that fact."

Ellison said he submitted a letter to PeopleSoft's Board of Directors in which he expressed his intention to discuss the offer with the board.

Oracle's buyout offer comes less than a week after PeopleSoft announced its intention to snare rival J.D. Edwards for $1.7 billion in stock. The deal, announced Monday, would have created the world's second-largest seller of applications software to businesses.

Oracle said that once the deal with PeopleSoft was completed, it would review whether, and on what terms, it would "support" PeopleSoft's previously announced acquisition of J.D. Edwards.

Industry analysts said the timing of Oracle's plans was likely hastened by PeopleSoft's plans to buy J.D. Edwards.

"Oracle was considering the move, but the PeopleSoft move to buy JD Edwards was the impetus," said Ian Campbell, president & CEO of industry research firm Nucleus Research. Campbell suggested that the three companies' technologies aren't necessarily incompatible, but there would be challenges integrating the operations of the software giants.

"The cultures [of Oracle and PeopleSoft] are very dissimilar," added Bryan Piskorowski, market commentator at Prudential. "We'll just have to wait and see."

He said PeopleSoft's bid for J.D. Edwards earlier in the week has heated up consolidation talk in the group. "In the application space, size and scale will be of strategic importance."