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Instant Insight |
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Larry’s Big Parade Late last week Oracle announced that it has made a
$5.1 billion cash offer to acquire PeopleSoft, makers of ERP software. The
unanticipated – and apparently unwelcome – bid by Oracle comes just after
PeopleSoft announced last week it would be acquiring J.D. Edwards for $1.7
billion. Oracle indicated that if it was successful in acquiring PeopleSoft,
Oracle would offer support for existing PeopleSoft customers but would no
longer sell new PeopleSoft products. Instead the company indicated that it
would offer migration tools to existing PeopleSoft customers in an effort to
migrate them to Oracle offerings. Oracle CEO Larry Ellison this week asked
for a special meeting with the PeopleSoft Board of Directors to present his
case, after negative reactions to the offer came from both PeopleSoft and
J.D. Edwards executives, the latter arguing that the
proposed acquisition of PeopleSoft by Oracle would require clearance from
anti-trust officials in both the Net/Net On one point, the incumbent consolidation of the ERP
market, we are in total agreement with Ellison. The simple fact that there
are too many suppliers and not enough demand is obvious when one looks at the
state of various vendors in the space. Baan is sold for a fraction of its
acquisition price. PeopleSoft and J.D. Edwards are trying to combine. One-
time high flyers like Siebel Systems are having a rough go of it. Adding to
this supply/ demand issue is the continuing stagnation of the economy: there
are no big enterprise IT spending booms in the near future, ones that could
revive struggling business application vendors. Consolidation is most
certainly upon us and do we think Larry Ellison has any reluctance about
being out in front of the parade? Of course not. Larry’s leading that parade by trying to position
Oracle as a lone wolf, a “can’t do without” player in the IT market
threatened with potentially devastating competition from powerhouses IBM and
HP. While there is much discussion in the marketplace about the growing
architectural split between application infrastructure (including Application
Servers, Web Servers, Web Services, EAI, IDE, and Portal Technology) and
application software, Oracle’s move would seem to send the message that it
wants to be the one-stop shop for all of these technologies. By doing so, the
company might be able to bolster its lone wolf position despite the market
trend of continued consolidation. But what of PeopleSoft? If this acquisition comes to pass, PeopleSoft would be positioned to take the lead in enterprise applications sales. If Oracle fails, then PeopleSoft would be able to build from its Number Two position — and use the DB2 trump card to demand better terms whenever Oracle came calling with its tin cup extended. But if Oracle is successful, it could gain access to a near captive relationship with the largest enterprise software vendor, which would likely cause many a chagrined face at IBM and Sybase given their strong relationships with PeopleSoft and J.D. Edwards. |