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Finally, Oracle Nails PeopleSoft

By Jim Kerstetter In June, 2003, when former PeopleSoft (PSFT) CEO Craig Conway first heard rival Oracle (ORCL) wanted to take over his company, he was in a sedan making the 45-minute trip from Amsterdam to Rotterdam. The cell phone of another exec in the car rang. Conway heard him ask three or four times, "Are you sure?" Bloomberg TV was reporting that Oracle wanted to acquire PeopleSoft. Conway figured it was just hedge-fund rumor, that "someone would make money for two hours."

Yet five minutes later, after Conway heard the news via that fateful call, Oracle had a press release on the news wires. The Silicon Valley database giant did indeed intend to acquire PeopleSoft, its longtime nemesis in the market for big, run-the-business software packages.

Conway was stunned, but he reacted quickly. He and his six-person entourage stopped at a hotel along the way in the Netherlands and rented a suite. Joked Conway in a 2003 interview: "We looked like we were running in there to make a porn movie."

VOTE OF CONFIDENCE. Eighteen months later, the bruising takeover fight has ended. In the wee hours of Dec. 13, Oracle announced that it had signed a definitive agreement to acquire PeopleSoft for $26.50 per share, about $10.3 billion. Shares of both companies were up on the news. Oracle, which also reported strong quarterly earnings, saw its stock jump 9.1%, to $14.49, in midafternoon trading on Dec. 13. PeopleSoft was up 10.3%, to $26.42.

It's easily the largest merger in software industry history. The combined company could have more than $12 billion in annual sales, and it makes Oracle -- already tops in the database software world -- a comfortable No. 2 in the corporate-applications software market. "We think it's a new world," Oracle CEO Larry Ellison said in a Dec. 13 interview with BusinessWeek Online. "Hostile takeovers can work. In fact, this one did." (See BW Online, 12/13/04, "Larry Ellison Savors His Victory.")

The deal, which is 65% above Oracle's initial offer, could close as early as January, 2005. It was approved by the board of directors of both companies just three weeks after PeopleSoft had rejected a $24-per-share offer. Oracle also won a resounding vote of confidence from PeopleSoft's shareholders three weeks ago, when more than 60% of them decided to tender their PeopleSoft shares to Oracle.

TALK OF LAYOFFS. Even so, until Dec. 13, PeopleSoft's board stood firm. It had control of a so-called poison pill that would have allowed PeopleSoft to flood Wall Street with new shares if Oracle gained a 20% stake, making the company too rich to acquire, even for cash-heavy Oracle. A proxy fight at PeopleSoft's next shareholders' meeting in March, 2005 had seemed likely.

The companies had also been due in Delaware court on Dec. 13 for a hearing on PeopleSoft's poison pill. Oracle had planned to ask a judge to remove the anti-takeover provision. All litigation between the two companies will now be dropped.

It's unclear what the merger will mean for PeopleSoft's employees. Early on in the fight, Ellison indicated he wanted to cut most of those workers, and analysts estimated in court that more than 6,000 PeopleSoft employees could lose their jobs. But in recent months, Oracle execs sounded more conciliatory, privately indicating that they were interested in keeping some of PeopleSoft's top engineers and salespeople.

In his Dec. 13 interview with BusinessWeek Online, Ellison also sounded eager to mine PeopleSoft's talent. "We're increasing our applications sales force by 50%," he says.

"IT WAS SURREAL." In many ways, the merger agreement is a sad ending for PeopleSoft and its ferociously loyal customers -- and a quiet ending to a spirited fight. Ellison & Co. showed remarkable tenacity for a year and a half. They overcame an antitrust challenge by the U.S. Justice Dept., which attempted to block the takeover on grounds that it would be anticompetitive, warded off scrutiny by the European Commission, and overcame skepticism that all they really wanted to do was muck with PeopleSoft's planned acquisition of another software maker, J.D. Edwards & Co.

At one meeting with Wall Street analysts, an exasperated Ellison even joked that if he had a gun, he would never dream of shooting Conway's dog -- but Conway himself probably wouldn't be so lucky! The response from Conway, who learned the tech business working for Ellison in the late 1980s? He and his dog appeared on stage at a customers' conference, where man and mutt both wore matching bulletproof vests.

From the battle's beginning in June, 2003, PeopleSoft execs mounted a bare-toothed defense. Conway, who was making the rounds with European customers at the time, worked the phones with his execs, investors, and customers out of hotel suites in Western Europe. "I remember someone saying, 'Craig, it's 4:30 in the morning.' I opened the drapes to see if it was light or dark out," he says. Back in the PeopleSoft's Pleasanton (Calif.) headquarters, Chief Financial Officer Kevin Parker was also working around the clock, taking catnaps in the company's plush customer center downstairs. "It was surreal, to say the least," Conway says of those first weeks.

MAKING IT WORK. Toward the end, the fight itself became surreal. Conway, a feisty exec who gets his exercise by punching and kicking a heavy boxing bag, became a high-profile casualty. In October, he was fired by his board after he understated the impact of the Oracle bid on PeopleSoft sales. Founder and Chairman David Duffield, who also had no love for Oracle -- he ran "Kill Oracle" pep rallies on PeopleSoft's campus in the mid-1990s -- stepped in to run the show. Most viewed that as a sign that PeopleSoft was getting ready to sell.

They were right. Now the hard part begins. Ellison will have to prevent an exodus of talent, at least among those employees he plans to retain, and also persuade PeopleSoft's customers to stick around. At $10.3 billion, he certainly doesn't want to acquire a PeopleShell. With BusinessWeek Senior Writer Steve Hamm in New York


Kerstetter is Technology editor for BusinessWeek Online in the Silicon Valley bureau

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