Oracle reels in PeopleSoft (finally!)
After 18 months of maneuvering and threats of lawsuits, Oracle finally engineered its hostile takeover of PeopleSoft this week. The price tag for the takeover is $10.3 billion. Oracle's original bid, in June 2003, was $5.2 billion.
The acquisition will make Oracle into a stronger number two provider of business enterprise resource planning (ERP) software, used for planning and supply-chain management by most major companies. It also it makes it the #2 provider of business software overall, according to some accounts. Now it has one fewer major competitors.
Chief rival German company SAP AG. SAP controls some 39% of the ERP market, and serves mostly Fortune 500 companies. The newly combined Oracle will control 25%. Other main players in the ERP industry are Microsoft and Sage Group, which target small-to-midsize businesses. In addition, SSA Global serves certain vertical industries. The top five (now four) companies control more than 80% of the market.
But is the takeover worth the struggle? PeopleSoft is estimated to have lost $1 billion in sales thanks to the ambiguity of its fate over the past year. PeopleSoft itself had already acquired rival J.D. Edwards, so this is part of a bigger rollup. Oracle had to fight antitrust doubts both in the US and Europe, as wells as strong opposition from PeopleSoft management and stockholders.
According to a Bloomberg wire story, the big motivation was anxiety about being too small:
"It's not just that I wanted to win for the sake of winning,"[Oracle CEO Larry] Ellison, 60, said on a conference call with reporters. "If Oracle is going to be a strong applications competitor, we had to be bigger."
In the narrow and slowly-growing world of business software, growth is becoming possible only through acquisitions. According to sources quoted in the Bloomberg report:
"This is acquiring growth," said Rich Williams, a Garban Institutional Equities analyst in Jersey City, New Jersey. "In a software industry that's struggling for any kind of growth at all, it seems this is the only path that most of the larger companies can take for the moment."
The biggest factor may be IBM. IBM has helped customers adapt both SAP and J.D. Edwards software in the past. Faced with yet another round of consolidation and a necessary change of software as Oracle converts over its current base, it might just help customers to move to SAP solutions instead of Oracle's.
