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Oracle-PeopleSoft Saga: A Market Ripple Effect
By Michael Singer

October 4, 2004

Analysis — The stars are aligning for Oracle’s (Quote, Chart) acquisition plans for PeopleSoft, but analysts say customers need to set their compasses to watch all the players in enterprise software applications if the deal goes through.

Two obstacles cleared out of the database software giant’s path to PeopleSoft (Quote, Chart) Friday. The U.S. Department of Justice said it would not appeal a ruling on its antitrust case, and in a surprise move, PeopleSoft’s Board of Directors fired CEO Craig Conway and replaced him with company founder and chairman Dave Duffield.

Sources inside the company say employees are encouraged by the return of Duffield, but still feel like they are smack-dab in the middle of a TV soap opera.

“Dave is a known entity. We know he left when he did because he felt he wasn’t capable of handling a ‘big’ company. Well, we’ve only grown bigger. So there is speculation along the lines of most investors [of a] set up for a buy out,” a PeopleSoft employee, who asked not to be identified, told “On the other hand, Dave was always fiercely loyal to his customers and his employees, possibly even to a fault. So there is speculation that he’s back and better than ever for PeopleSoft. Only time will tell.”

PeopleSoft spokesperson Steve Swasey told the board of directors would continue to consider Oracle’s offer but gave no timeline. Based on the opinions of its financial partners, Citigroup and Goldman, Sachs, the board has said Oracle’s current offer of $21.00 per share is inadequate. Swasey said trying to figure out the board’s next move would be “purely speculative.”

Analysts interviewed by say the latest events increase the probability of a hostile takeover — perhaps in the next three months. If the merger does go through, however, they contend IBM (Quote, Chart), Microsoft (Quote, Chart), and SAP AG (Quote, Chart) will also influence the Enterprise Application Software (EAS) market.

“Especially IBM. For them it is a win-win situation,” Philip Fersht, Yankee Group analyst and director of the research firm’s Business Applications Group, told “When PeopleSoft agreed to put [IBM’s] WebSphere products in its software, at first we tried to put a positive spin on this with the possibility that IBM would be a ‘White Knight’ with PeopleSoft. When we looked at what IBM wanted to do, all we could tell is that they want to sell WebSphere to more customers. The IBM partnership is more about controlling 70 percent of the Human Resource software market.”

Fersht says IBM is also getting aggressive with its business process outsourcing, where Big Blue provides high level services around PeopleSoft software human capital management software.

Fellow Yankee Group analyst Mike Dominy says SAP is a winner, because even though it will compete more fiercely with fewer players, the raging battle between Oracle and PeopleSoft has allowed SAP to quietly peel off more market share.

SAP’s success could also help Microsoft in its pursuits to grow beyond its mid-market presence, courtesy of Microsoft’s Great Plains platform. Beyond a one-time plan to consider a merger, the two companies have applications that already compliment each other, including Microsoft’s Biz Talk server with SAP’s connectors as well as SAP’s NetWeaver support for Microsoft .NET products and smart client technology. But Fersht also notes that Microsoft is the largest Web services provider hands down, which is of great interest to SAP.

A merger of PeopleSoft and Oracle could also leave smaller players scrambling, according to Yankee Group’s Fersht.

“I would expect to see IBM go into the apps game with a Siebel acquisition or BEA. I just don’t think BEA can now stand up to Oracle if it acquires PeopleSoft. With IBM and BEA they could focus on the integration space and middleware.”

Page 2: Several Obstacles Remain in Path of Merger

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