As business software maker Oracle Corp. presses on with its $6.3 billion bid to swallow rival firm PeopleSoft Inc., several PeopleSoft customers—including large school districts, universities, and state education agencies—fear the maneuver could disrupt their operations and ultimately cost them millions of dollars to convert their systems.

Although one high-ranking Oracle executive told the Associated Press (AP) the company no longer would sell PeopleSoft products if the deal goes through, he insisted Oracle would support PeopleSoft products “for a long time.” Many PeopleSoft users, however, are skeptical of such claims.

Underscoring their fear, Connecticut’s attorney general filed a lawsuit against Oracle on June 18 to scuttle the takeover. The state has spent $80 million to upgrade its human resources and payroll systems using PeopleSoft software—and if Oracle takes over and discontinues the PeopleSoft product line, it would cost the state tens of millions of dollars, Gov. John Rowland said.

Connecticut is one of 15 states that reportedly use PeopleSoft’s software to manage human resources, accounting, and purchasing throughout their agencies. PeopleSoft also says its software is used by more than 650 higher education customers and at least 30 large K-12 districts, including the Boston, Detroit, Houston, San Francisco, and District of Columbia schools.

Bill Monroe, chief of operations for the Texas Education Agency, said his department has invested close to $10 million in PeopleSoft’s Financial Management for Education and Government package since 1997.

“The only potential we see is downside potential,” he said of Oracle’s takeover bid. “We see no upside potential.”

If Oracle were to take control of the company and phase out the PeopleSoft brand, as some insiders have suggested, Monroe estimated it would cost his agency at least $3 million to transition its technology infrastructure over to Oracle solutions—a weighty proposition as Texas struggles to pull itself out of an estimated $10 billion budget hole this year.

Monroe also said a major technology overhaul has the potential to wreak havoc on the agency’s complicated computer system, which supports more than 4 million Texas students. State agencies probably would be forced to retool several of their technology initiatives while dealing with the possibility of serious project disruptions and other technology “hiccups,” he said.

Uncertainty abounds

Oracle chief executive Larry Ellison sent shock waves throughout the industry when he announced his original $5.1 billion takeover bid on June 6, just four days after PeopleSoft announced plans to acquire Denver-based J.D. Edwards and Co. in a stock swap valued at $1.7 billion.

On June 18, Ellison raised his bid to $6.3 billion in a push to overcome PeopleSoft management’s opposition to the deal. But PeopleSoft’s board of directors rejected this sweetened offer as well. They said joining with Oracle would be difficult, if not impossible, because regulators would raise too many questions about how the deal would affect competition in the $20 billion business software market.

Oracle currently ranks as the second-largest provider of business software behind Germany’s SAP.

Industry analysts also say PeopleSoft executives—many of whom defected from Oracle—would bristle under Ellison. Oracle and PeopleSoft have long had an acrimonious relationship, marked by sniping between Ellison and PeopleSoft chief executive Craig Conway, who worked under Ellison from 1985 to 1993.

PeopleSoft filed a lawsuit in California state court alleging the bid is a “sham” offer designed to destroy the company. J.D. Edwards also sued Oracle, seeking $1.7 billion, plus unspecified punitive damages, for trying to interfere with its PeopleSoft deal.

Oracle called the suit “frivolous.” It has filed a suit of its own in Delaware against PeopleSoft, its board of directors, and J.D. Edwards citing “their collective efforts to eliminate PeopleSoft shareholders’ ability to accept Oracle’s tender offer.”

It remains unclear exactly how PeopleSoft’s 5,100 customers would fare in a takeover. Large clients such as government agencies, city school systems, and Fortune 500 corporations spend millions of dollars to install proprietary business software. Switching can become a costly, technical morass.

Jeff Henley, Oracle’s chief financial officer, told AP that Oracle would not eliminate the PeopleSoft brand but also would not offer PeopleSoft products to new clients.

“We intend to support these products for a long time,” Henley said. He added that PeopleSoft’s consulting projects would “naturally wind down” over the next nine to 12 months but that Oracle would support such projects as long as they exist.

The quality of support could become an issue, however, because Ellison has been quoted as saying a large number of PeopleSoft personnel would be lose their jobs in the wake of a merger.

Regardless of the ultimate fate of PeopleSoft’s software and staffing, the legal machinations on both sides of the conflict—and the uncertainty they foster—promise to make the jobs of ed tech software purchasers even more challenging in the next few months.

“It kind of shook us all up when this started happening. There’s tons of unknowns out there,” Betty Brugger, director of information technology management systems at Illinois’ Northwestern University, told the news service Reuters.

To make matters worse, industry experts say the Oracle-PeopleSoft-J.D. Edwards intrigue could be just the latest in a string of software industry shakeups to come. The prospect of Oracle, already the world’s second-largest software maker, becoming even bigger seems certain to trigger another wave of deals among other major players trying to protect their turf, they say.

“There will be a domino effect,” predicted Paul Birch, chief executive of business software maker Geac Computer Corp. “There has to be more consolidation. It’s a sign of a maturing industry.”

Links:

Oracle Corp.
http://www.oracle.com

PeopleSoft Inc.
http://www.peoplesoft.com

J.D. Edwards and Co.
http://www.jdedwards.com

SAP
http://www.sap.com