Ed tech managers from coast to coastespecially those in universities, large urban districts, and state education agencieswere on the edge of their seats at press time, waiting to learn whether business software maker Oracle Corp. would prevail in its $6.3 billion hostile bid to acquire rival firm PeopleSoft Inc.
If the deal were to be consummated, many PeopleSoft customers worried the takeover could disrupt their operations and ultimately cost them millions of dollars to convert their systems.
But even if the Oracle takeover of PeopleSoft were to fizzle, analysts predict more turbulence lies ahead among business software makers, because further consolidation strategies are on the rise in that sector.
Although Oracle said it would no longer sell new PeopleSoft products if the deal went through, the company insisted it would support existing PeopleSoft products “for a long time.” Many PeopleSoft users, however, were skeptical.
Reflecting their disquiet, 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 softwareand 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 reportedly using PeopleSoft’s software to manage human resources, accounting, and purchasing throughout their agencies. PeopleSoft says its software also 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 solutionsa 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.
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 executivesmany of whom defected from Oraclewould 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.”
Further complicating the tussle, PeopleSoft disclosed in early July that it had cut second-quarter deals that could saddle Oracle with customer refunds totaling $354 million if its foe suitor prevails.
Seeking to reassure customers uncertain about the company’s future while simultaneously reducing its desirability as a takeover target, PeopleSoft promised to return from two to five times the cost of software purchased during the quarter if the company were acquired and there were dramatic changes to its products or services within the next two years.
The refund bill would be inherited by Oracle should it succeed in its takeover bid. Still, Oracle refused to back off, declaring that the owners 34.75 million shares of PeopleSoft stock have signaled their intention to sell in defiance of PeopleSoft’s board.
It remains unclear exactly how PeopleSoft’s 5,100 customers would fare in a takeover. Large clients spend millions of dollars to install proprietary business softwareand switching can become a costly, technical morass.
“We intend to support [PeopleSoft] products for a long time,” Jeff Henley, Oracle’s chief financial officer, told the Associated Press. 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 conflictand the uncertainty they fosterpromise to make the jobs of ed tech software purchasers even more challenging in the next few months.
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.”
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J.D. Edwards and Co.