Update: Oracle Trying to Spoil the Peoplesoft/JDE Deal

June, 2003

On Tuesday, June 3rd we featured a Research Byte written by Frank Scavo on the pending acquisition of JDE by PeopleSoft. The following commentary is an update to that earlier posting. The original commentary is included in this posting.

Update: Oracle Trying to Spoil the Peoplesoft/JDE Deal

Just four days after PeopleSoft offered to buy J.D. Edwards, Oracle announces that it is offering to buy PeopleSoft for $5.1 billion. Although by every sign, the PeopleSoft/JDE deal is friendly – the two CEO’s claim to have been talking about this for months – the Oracle bid for PeopleSoft is hostile. Furthermore, unlike PeopleSoft and JDE, whose products and markets can be viewed as complementary, Oracle and PeopleSoft are fierce competitors.

The two companies have gone head to head in many high-end deals, especially in financial applications, human resources, CRM, and e-procurement. So Oracle’s offer isn’t about any great desire to get a hold of PeopleSoft’s products. It’s about breaking up the PeopleSoft/JDE combination. Oracle’s press release gives away the motivation: it clearly states that if Oracle wins, it will stop actively selling PeopleSoft products and will re-evaluate the acquisition of J.D. Edwards.

Oracle is only offering a 6% premium over PeopleSoft’s current market cap, so the deal is by no means certain to be approved by PeopleSoft shareholders. But Oracle’s offer throws the PeopleSoft/JDE deal into uncertainty. It is my opnion that Oracle will not be successful in acquiring PeopleSoft.

But even if Oracle does not win, the short-term tactical benefit in creating fear, uncertainty, and doubt about the future of BOTH PeopleSoft and JDE in the mind of potential buyers is invaluable to Oracle for sales over the next couple of quarters. With the enterprise systems market starting a modest recovery, Oracle’s hostile bid is simply a tactical maneuver to strengthen its own position in sales opportunities this year. ______________________________________________________________ Previous Article

The number of Tier I ERP vendors is shrinking by one, with PeopleSoft’s June 2nd announcement that it is buying J.D. Edwards. This is one of the biggest and most significant deals in the enterprise systems space in a long time.

The combined company will have annual revenue of about $2.8 billion and about 13,000 employees. Both vendors cut a very broad applications footprint. Both are very strong in financial applications, while PeopleSoft has an edge in HR and CRM, and JDE has a stronger presence in manufacturing and distribution. Nevertheless, these two vendors go head to head in many deals.

The press release indicates that JDE will operate as a wholly owned subsidiary of PeopleSoft, which means that existing clients will probably not see much change immediately. But it will be very interesting to see what happens when a prospect wants to look at both JDE and PeopleSoft.

Why is PeopleSoft doing this? There is already some speculation that PeopleSoft needs a stronger mid-market strategy to compete against Microsoft (with its Great Plains acquisition) and that of all the major enterprise system vendors, JDE has the strongest mid-market presence.

The deal is expected to close by early fourth quarter 2003.

June 2003