After months of anxious waiting, it finally looks as if PeopleSoft--the enterprise application vendor that acquired J.D. Edwards last summer--can do business without having to fight off Oracle Corporation's hostile takeover bid. Over the last several weeks, a series of events have put Oracle's bid into a coma from which it will likely never awaken. That frees PeopleSoft to put its full attention on its customers, including the thousands of iSeries owners that use J.D. Edwards applications.
It was not long ago that PeopleSoft's survival was in significant doubt. Throughout the second half of 2003, Oracle kept the pressure on the company by urging PeopleSoft investors to tender their shares. It also proposed to shareholders that at PeopleSoft's next annual meeting, they should elect to the board of directors "independent" candidates who would give fair consideration to Oracle's bid. Of course, Oracle provided its own slate of candidates to fill those positions, leaving the outcome of any decision in little doubt.
Despite these efforts, Oracle's bid garnered little interest from PeopleSoft shareholders during 2003. This was partly because the United States Department of Justice (DOJ) was reviewing the antitrust implications of the takeover bid. It was also because PeopleSoft's stock exceeded Oracle's $19.50 per share bid not long after the company announced it. In early February of this year, however, Oracle raised its bid from $19.50 to $26 per share. That increased the cost of the deal to $9.4 billion, an amount that was almost 19% greater than PeopleSoft's market capitalization.
For a few days, it looked as if Oracle's new bid might persuade PeopleSoft's board to approve the acquisition or, barring that outcome, persuade enough investors to tender their shares. After considering the offer for a week, however, PeopleSoft rejected the bid on the grounds that it still undervalued the company. PeopleSoft also urged investors not to cooperate with Oracle. Most investors apparently agreed with the board, as few of them tendered their shares. Then again, the shareholders were probably waiting to see what the DOJ's decision would be before they made any decisions of their own.
That decision was not long in coming. A week after Oracle sweetened its bid, officials within the DOJ recommended that the agency block Oracle's acquisition bid. In response, Oracle CEO Larry Ellison threatened that if the DOJ decided to block the deal, he would ask Oracle's board to fight the government agency in court. Two weeks later, the DOJ and seven states fired back by filing an antitrust suit against Oracle. To add insult to injury, Microsoft lent moral support to the suit by stating that it has no plans to compete against PeopleSoft in its markets over the next two years. This undercut one of Oracle's central arguments in the brief that it filed with the DOJ: that a merger would protect PeopleSoft from the competitive attacks that a monopolistic Microsoft was ready to launch against it.
As a result of the DOJ's legal actions, Oracle did not try to replace PeopleSoft's board of directors with its "independent" candidates at the company's annual meeting on March 25. This gave investors an open field to reelect the existing board and affirm its rejection of Oracle's takeover bid. While it is still possible that Oracle will return to haunt PeopleSoft someday, it will have to prevail first in its battle with the DOJ, not to mention a similar battle that it will likely have to wage with the European Commission. Those legal obstacles make Oracle's bid a dead or at least a rapidly dying effort.
Now that the clouds of fear and doubt are lifting from PeopleSoft's future, the company is shifting its attention to integrating its product lines and creating new solutions and services. Recently, for instance, the company shipped seven connectors that integrate modules in its Enterprise (formerly known as PeopleSoft 8) and EnterpriseOne (formerly known as OneWorld and JDE5) suites. The company has also announced EnterpriseOne 8.10, a new release that brings numerous enhancements to seven modules. PeopleSoft has also stated that it will make selected EnterpriseOne 8.10 modules available on RedHat Linux in May of this year. This could pave the way for a version of EnterpriseOne that runs in iSeries Linux partitions.
PeopleSoft is also renewing its attention to its iSeries-based World application suite. In mid-March, the company announced a new World release that contains more than 250 new features. The release includes enhancements to the product family's Human Capital Management, Manufacturing and Distribution Management, and Financial Management applications, as well as Web-based user interfaces to many of World's 5250 screens. The release is now available free to customers with current maintenance agreements.
While PeopleSoft is getting high marks from many of its customers, some concerns still linger. Among them, perhaps the biggest concern is over the changes PeopleSoft is making to its licensing agreements for EnterpriseOne customers. In January of this year, PeopleSoft started asking EnterpriseOne customers to switch from their existing per-user licenses to "value-based" licenses with unlimited numbers of users. PeopleSoft uses numerous factors to calculate the cost of these licenses, including a customer's size and industry. Unfortunately, some customers are finding that the new licenses could substantially increase their annual fees. This has led to tense negotiations and some rethinking on PeopleSoft's part of its licensing model.
Though it will take PeopleSoft time to understand the needs of J.D. Edwards and iSeries customers, the company has demonstrated that it values these customers and the solutions they use. It has also protected its new customers from a hostile takeover that would have put thousands of companies at the mercy of an IT vendor that has no investment in the iSeries. These facts give J.D. Edwards customers good reasons to look at PeopleSoft's product strategy and invest in its applications with confidence.
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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