Oracle Launches Surprise Bid To Buy PeopleSoft

Oracle Corp. (Nasdaq: ORCL) has shocked the software world by announcing that it will set out to buy all outstanding shares of PeopleSoft. The US$5.1 billion takeover bid comes just days after PeopleSoft announced a major acquisition of its own.

Starting Monday, Oracle will offer $16 per share for PeopleSoft shares, a premium of just under $1, or about 17 percent, over Thursday’s closing price of $15.11.

Oracle acknowledged the deal was a surprise, saying it had not yet discussed terms with PeopleSoft's board of directors, though CEO Larry Ellison had written to notify them the offer was coming. Ellison also noted that he and PeopleSoft executives had discussed a similar integration a year ago.

Shares of PeopleSoft skyrocketed on the news, jumping more than 20 percent to $18.39 in early trading. Oracle shares were also up, gaining 1.5 percent to $13.56.

Not So Fast

PeopleSoft did not immediately respond to word of the offer.

In fact, Pleasanton, California-based PeopleSoft earlier this week announced its intention to buy process automation software maker J.D. Edwards in a stock deal worth about $1.7 billion.

Oracle said that once it completes its PeopleSoft takeover, it will reexamine whether to go forward with the J.D. Edwards deal. It is difficult to determine whether or not Oracle saw that merger, which would have created the number two enterprise software firm behind Oracle, as a threat, but the company said it has not ruled out the deal.

"We're very interested in J.D. Edwards, and we're keeping our options open there," Ellison said. He added that buying PeopleSoft will "immediately make Oracle an even more profitable and competitive company."

Integration of Sorts

Ellison indicated that Oracle will not sell PeopleSoft's product lines to new customers, but will continue to provide support for existing software programs. PeopleSoft's developers will be split up, with half working on improving existing PeopleSoft programs and half working to integrate PeopleSoft into Oracle's product line.

"Although we will not be actively selling PeopleSoft products to new customers, we will provide enhanced support for all PeopleSoft products," Ellison said. "We will be incorporating the advanced features from the PeopleSoft products into future versions of the Oracle eBusiness Suite."

The offer is being partially underwritten by Credit Suisse First Boston, with other cash coming from Oracle's reserves.

The enterprise application business is one arena in which Oracle, still a dominant player in the database software market, could make strides. In its most recent quarter, application sales made up just over 25 percent of Oracle's total revenue.

One Fell Swoop

In fact, analysts said that given the lack of traction gained by Oracle's eBusiness suite to date, it appeared that the best way for Oracle to become a force in the applications sector was through an acquisition.

"They tried to light a fire under their software," Gartner (NYSE: IT) analyst Brian Zrimsek told the E-Commerce Times, referring to Oracle's recently announced all-in-one licensing program. "But they needed strong growth to make it worthwhile, and it may not have been developing."

Separately, Oracle said it will turn in earnings of 14 to 15 cents per share in its current quarter, beating analysts' estimates for the fourth straight quarter.