Merged Oracle-PeopleSoft Faces Daunting Challenges

Oracle CEO Larry Ellison has won again, this time after an acrimonious,18-month-long battle with PeopleSoft, whose board of directors bowed todayand agreed to a US$10.3 billion takeover offer.

In October, Oracle made what it called its “best and final offer” of $24 ashare. The company then raised that offer to $26.50, which, after a weekendof discussion, the board concluded it could not decline.

Bigger Battles Ahead

In some ways the battle has only begun, however, as Oracle must now figure out a way to meldtwo quite different cultures into one profitable company.

The combined Oracle andPeopleSoft will be the second largest provider of business software in theworld after SAP, but Oracle will have to supportPeopleSoft’s 200-plus products while trying to integrate the companies’customer bases and laying off thousands of people.

“SAP is the big beneficiary and the stock to own right now,” AmericanTechnology Research analyst Donovan Gow told CRM Buyer. “The integration isgoing to be long and difficult.”

“You can bet SAP has been gearing up for this,” he added.Gow, who has covered PeopleSoft throughout the takeover process, said thatcompany employees began floating resumes as soon as the word was out thatOracle was looking to buy.

“It’s a different corporate culture. In a way it’s the anti-Oracle. Thereare going to be big layoffs anyway,” Gow said.

“Oracle has been going on the assumption that it would prevail,” he said,”but it’s my opinion that you can’t plan for something this large verywell.”

Support for Customer Base

The combined company, as it stands, will have more than 22,750 customers and53,800 employees. It behooves Oracle to take good care of PeopleSoft’scustomer base, since the company has said all along that those customers arethe reason it wanted to buy PeopleSoft.

Oracle said it will enhancePeopleSoft 8 and JD Edwards 5 and develop PeopleSoft 9 and JD Edwards 6.The benefits of the deal are far in the distance, and not guaranteed, Gowsaid.

“It could be in the very long term a good idea. Oracle applications havebeen weak and performed poorly. PeopleSoft’s products are complementary, butcan they get over integration issues? It’s a huge challenge. Acquiringanything this large creates a risk. I think it will be two years beforethey’ll see any benefits, if they can do it.”

When the deal is finalized, which is expected to happen next month, thecompanies will drop the lawsuits pending against each other. Oracle is suingPeopleSoft in Delaware Chancery Court to force the company to drop the customerassurance program and poison pill provisions designed to make a takeoverprohibitively expensive.

PeopleSoft has filed a civil suit in Alameda County Superior Court in California againstOracle, claiming Oracle’s takeover bid was a deliberate attempt at sabotage.PeopleSoft stock was up more than 10 percent, to $26.43, at midday; Oraclewas up 9 percent, to $14.48.


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