On July 18, PeopleSoft announced that it had completed its $1.8 billion acquisition of J.D. Edwards, a leading provider of enterprise software for mid-market companies and iSeries customers. As a result of the acquisition, PeopleSoft has replaced Oracle as the world's second largest vendor of enterprise software after industry leader SAP. However, that fact is not stopping Oracle from pursuing its bitter battle to acquire PeopleSoft.
In its announcement, PeopleSoft declared that it had purchased 88% of the outstanding shares of J.D. Edwards. Stockholders who tendered their shares prior to the announcement are receiving a combination of PeopleSoft stock and cash with a net value of $14.74 per share. PeopleSoft also said that it expects to acquire the remaining 12% of J.D. Edwards' shares before the end of August. Acquiring those shares is important for PeopleSoft, as it needs at least 90% of all shares to close the deal without having to submit the merger to shareholders for a vote. Even if a vote is required, however, there is little doubt that shareholders would approve the deal, as corporate bylaws require only a simple majority for acquisition approvals.
With the acquisition essentially completed, PeopleSoft and J.D. Edwards now face two big challenges: the merging of their organizations and the ongoing battle with Oracle for ownership of PeopleSoft. While the merger will require considerable effort, it should be a relatively painless process compared to many software industry combinations. Since the two companies focus on different customer sets with different products, there will be minimal elimination of duplicate products and functions. Initially, J.D. Edwards will probably operate in much the same manner as before, but as a separate division within PeopleSoft. As I explained in my article last month, PeopleSoft fully intends to support and enhance J.D. Edwards' core products. PeopleSoft values the mid-market customers that J.D. Edwards is bringing it and wants to avoid giving them any reasons to migrate.
Maintaining customer loyalty will be all the more important for PeopleSoft in the coming months as it continues its struggle against Oracle's hostile takeover attempt. In statements immediately following the J.D. Edwards acquisition, Oracle CEO Larry Ellison made it clear that he could continue his pursuit of PeopleSoft well into next year. Given this fact, PeopleSoft will take pains to keep its customers satisfied and--just as importantly--buying software and services. The vendor knows that if revenues decline, its shareholders could start listening to Ellison's siren calls to tender their shares.
While Oracle poses a definite threat to PeopleSoft, it is a threat that is becoming increasingly distant. With the acquisition behind it, PeopleSoft has a market capitalization that is now at least $1 billion bigger based on the additional shares it is issuing to J.D. Edwards shareholders. To absorb that increased valuation, Oracle may have to change its bid from an all-cash offer to one that involves cash and stock or that draws upon its credit lines. That would make the bid less attractive to PeopleSoft shareholders.
In addition, Oracle's offer will now face even greater scrutiny from the United States Department of Justice. Earlier this month, the DOJ asked Oracle for additional information about its PeopleSoft bid so that the agency could determine the antitrust implications of the deal. Now that Oracle must swallow two vendors rather than one, those implications will loom even larger than they did a few weeks ago. As a result, the DOJ could take many months to determine whether to approve Oracle's bid. Even if the agency approves the bid, it could force Oracle to divest itself of some product lines or agree to terms that would render the deal unacceptable to shareholders.
Despite these challenges, Ellison is pressing ahead with his bid. Undoubtedly, his strategy is to spread an atmosphere of uncertainty and doubt over PeopleSoft's future that will translate into reduced product sales. If PeopleSoft's revenues do decline, Ellison will point to the decline as evidence that the vendor needs Oracle to remain viable and, on that basis, ask PeopleSoft stockholders to tender their shares to him. Should this strategy fail to win enough shareholders, Ellison may show up at PeopleSoft's annual meeting next May to get his own slate of candidates elected to PeopleSoft's board of directors. Doing so will be extremely difficult, as PeopleSoft just increased the size of its board from seven to eight members and appointed a J.D. Edwards executive, Mike Maples, to the eighth seat. This would force Ellison to unseat five board members to gain control.
In short, given the many legal and financial hurdles in Oracle's way, the odds are definitely turning in PeopleSoft's favor. However, this battle is far from over. For PeopleSoft and J.D. Edwards to declare final victory, they need solid sales results and a rising or stable stock price. This puts the customers and prospects of the newly merged companies in a highly advantageous negotiating position. If you're doing business with either one of these vendors and you're willing to accept the risks of buying their products, this could be one of the best times to make a purchase. Mark my words: You will rarely find vendors that value your business as much as PeopleSoft and J.D. Edwards do today.
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at
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