A cloud of uncertainty swept through school IT departments and business offices nationwide yesterday as hundreds of administrators wondered what Oracle Corp’s $10.3 billion takeover of rival PeopleSoft Inc. might mean for their schools. Though there is some concern as to how long Oracle will continue to support PeopleSoft’s software, some educators see the merger as an opportunity for the companies to combine their resources in hopes of providing a better business enterprise solution for schools.
Ending 18 months of bad blood, Oracle raised its takeover bid by 10 percent to seal the deal that will create the world’s second largest maker of business applications software, trailing only German software maker SAP. The agreement, announced Dec. 13, ends a rancorous Silicon Valley feud marked by churlish exchanges between the companies’ management teams and colorful courtroom battles.
Redwood Shores, Calif.-based Oracle brought an end to the hostilities by sweetening its all-cash offer to $26.50 per share, up from a $24 bid that PeopleSoft’s board had rejected as inadequate. The final offer represents a 75-percent premium from PeopleSoft’s market value before Oracle launched the takeover battle in June 2003.
The deal leaves hundreds of schools and universities using PeopleSoft products to question the fate of millions of dollars worth of software and service contracts inked with the company. PeopleSoft says more than 650 universities and dozens of large K-12 school systems use its software nationwide.
Michael Casey, educational technology program manager for the San Diego City Schools (SDCS), the nation’s 13th-largest urban school district, said he wasn’t quite sure what to make of the news just yet.
Two years ago, SDCS signed a deal that would pay PeopleSoft in excess of $30 million to help streamline the district’s payroll services, as well as its supply-chain management and other critical procedures. Though the project got off to a rocky start when the technology turnover resulted in late payment for several bills (see “Faulty implementation can derail biggest IT projects“), Casey said the situation has since improved, adding that San Diego had planned to stay with PeopleSoft through the long term.
“Any time a big merger like this takes place, obviously you have some things you want to consider,” he said.
Chief among these is stability. Large clients spend millions of dollars to install proprietary business software–and switching to a new system can become a costly, technical morass.
Despite the problems SDCS initially reported with its software, Casey said he was encouraged by Oracle’s desire to continue to support the PeopleSoft brand.
“I like what I’m hearing so far,” he said. “It looks like we’ll have a couple of years of stability here.”
In a statement on its web site about the merger, Oracle said it will support current PeopleSoft solutions through the release of PeopleSoft 9. Company executives say they hope the merger will provide all existing PeopleSoft customers–including schools–with a more robust enterprise solution going forward.
“Oracle understands that each PeopleSoft customer has made a significant investment in its current software applications and that it is critical these purchases retain their value and usefulness,” the statement said. “We have spent a significant amount of time and resources in the pursuit of PeopleSoft because we believe that the combined companies will provide customers with superior benefits and a stronger long-term alternative. The combination will ensure continued innovation in a rapidly changing market while at the same time preserving customers’ existing IT investments.”
Casey agreed: “I look at this as an opportunity to make the product even better,” he said.
Others were more skeptical. Jeff Weiler, chief financial officer for the 129,000-student Gwinnett County Public Schools in metropolitan Atlanta, questioned whether Oracle would continue to uphold PeopleSoft’s long-standing commitment to its school customers in particular.
“PeopleSoft brought on a lot of talent in the K-12 area to support us,” he said. “From what I know, Oracle doesn’t have near that kind of presence in schools.”
Like San Diego’s Casey, Weiler said he was encouraged by Oracle’s pledge to continue support for the PeopleSoft brand–in the near term. But he wonders whether support will become an issue down the road.
What happens after the release of PeopleSoft 9 is anyone’s guess, Weiler said: “Oracle can decide to do whatever it wants.”
For their part, executives at Oracle spent the day trying to ease customers’ concerns.
“This is a major turning point for the entire enterprise software industry,” Oracle co-president Charles Phillips said during a Dec. 13 conference call with investors.
By picking up 12,750 customers and more than $2 billion in annual revenue, Oracle hopes to mount a more serious challenge to SAP’s leadership in business applications software–the computer coding that automates a wide range of administrative tasks. Oracle plans to complete the takeover next month.
“This merger works because we will have more customers, which increases our ability to invest more in applications development and support,” Oracle CEO Larry Ellison said.
The fate of PeopleSoft’s roughly 12,000 employees remains unclear. Oracle at one point drew up plans to fire more than 6,000 PeopleSoft workers, but the company recently has indicated that the purge might not be as dramatic as management originally envisioned.
Pleasanton, Calif.-based PeopleSoft had steadfastly resisted Oracle’s overtures, maintaining that it could do a better job taking care of its customers than its long-time rival.
To get the deal done, Oracle also had to overcome the U.S. Department of Justice, which sought to block the deal because it believed the merger would drive up software prices and diminish product innovation. A federal judge, though, rejected the government’s antitrust claims, removing one of PeopleSoft’s strongest takeover defenses.
Oracle’s bid received another boost when PeopleSoft unexpectedly fired its chief executive, Craig Conway, a former Oracle employee who had spearheaded the company’s defiant resistance. Conway escalated the acrimony by occasionally taunting Oracle.
After Conway’s ouster, PeopleSoft’s board began to focus its efforts on extracting a higher price, while Oracle executives lobbied for a lower price.
PeopleSoft’s board approached Oracle over the weekend as the two sides prepared to give more testimony in a Delaware trial focusing on an anti-takeover defense known as a “poison pill.” The mechanism represented the final obstacle preventing Oracle from completing the takeover after 61 percent of PeopleSoft’s shareholders last month agreed to accept $24 per share.
The Delaware trial and another lawsuit filed by PeopleSoft will be dropped as part of the sale.
“This has been a long, emotional struggle,” said George “Skip” Battle, a PeopleSoft director who oversaw the Oracle negotiations. “The board salutes our employees for their outstanding dedication to PeopleSoft and is grateful to our customers who have continued to buy our products and stand by us during these uncertain times.”