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Gates' eMail Discussed PeopleSoft Stake

UPDATED: SAN FRANCISCO -- Like a pebble thrown into a still pond, Oracle's hostile bid for PeopleSoft sent ripples through the boardrooms of its rivals.

Bill Gates, who after learning about the hostile takeover last June, fired off an e-mail to Microsoft CEO Steve Ballmer asking to consider taking a financial stake in Pleasanton, Calif.-based PeopleSoft or acquiring Enterprise Resource Planning (ERP) software market leader SAP . The e-mail was revealed during Oracle's first day of defending itself against the U.S. Department of Justice's antitrust claims.

"Thinking about this PeopleSoft bid... made me wonder if we should approach them and suggest a minority investment to bolster their independence," Gates said in his e-mail. As for SAP, Gates' note said it was about time Microsoft made a move, "given our view of the need to strengthen our platform and willingness to use value to do it seems interesting."

Eventually, Microsoft entertained merger talks with SAP to the tune of $65 billion. But Douglas Burgum, vice president of Microsoft's Business Solutions, confirmed that the company dropped the discussions earlier this year and has no plans to renew its efforts.

The DoJ claims Redwood Shores, Calif.-based Oracle's acquisition of PeopleSoft would reduce the number of major enterprise software players to just two companies -- SAP and Oracle. Oracle's argument is that the government's market definition of ERP players is too narrow and must be widened to include Microsoft and IBM as well as Fidelity and Ceridian. The DoJ subpoenaed Burgum in a bid to show how Microsoft is not a factor in the large enterprise markets.

Microsoft's interest in PeopleSoft and SAP are key points in Oracle's antitrust defense strategy. Despite Microsoft's public statements that it would not enter the mid-to-large business sector for at least two years, Oracle claims that its rival in Redmond has already made movements into high-end enterprise markets and has customer wins to show for it.

Oracle released a 29-page white paper to the press Tuesday detailed how Microsoft's Great Plains division beat out a bid from PeopleSoft for theme park owner Six Flags Inc.'s $1 billion business. Oracle also points to Microsoft's future development in the markets with its "Project Green." Microsoft has said the initiative is an open, service-oriented architecture (SOA) and a new process-centric design based on getting everything under the .NET architecture, creating a new generation of component-based business applications.

Independent of Microsoft's advances, SAP was also reacting to Oracle's hostile takeover plans. Earlier on the stand, Richard Knowles, vice president of operations SAP America, was asked about his company's neutral stance toward Oracle's takeover plan.

"We are agnostic on the acquisition. This is not our fight. We do not side with either Oracle or the DoJ," Knowles said.

But when asked further about how the Waldorf, Germany-owned firm reacted to the original merger news, Knowles recounted that the company saw the merger as putting an extra dimension on their bidding contracts, considering that SAP went head to head with Oracle and PeopleSoft on a regular basis.

"We anticipate the same level of or greater amount of competitiveness," he said. "It is about winning that relationship with the client. It's nice to know with whom we are competing against, but that doesn't affect the way we [structure a competitive] discount."

Knowles also pointed out that SAP had also added Microsoft to its short list of companies it considered its closest rivals when competing for bids from companies that made under $1.5 billion.

Mike Dominy, Director of Enterprise Services at research firm Yankee Group, said the battle for IT dominance within the enterprise and eventually beyond the four walls of the enterprise is well underway.

"Oracle's long-term strategy is reflective of the consolidating market for IT used within large and medium enterprises," Dominy told internetnews.com. "Surviving the shake-out requires having a large customer base that provides recurring maintenance revenue and the ability to sell additional applications and technologies -- often called composite applications (applications that improve information flow and coordination between the enterprise and its network of business partners) into that enterprise customer base."

Steve Swasey, director of PeopleSoft's corporate public relations, said the company has claimed all along that the merger is not good for its customers. "Oracle's claim that it will continue to support our development in PeopleSoft or even J.D. Edwards' software is only for about 10 years," he told internetnews.com. "What does that cover? Just bug fixes?"

Oracle is scheduled to continue its defense Thursday with testimony expected from Retail.In.Genius CEO Ken Harris. Fidelity Vice President Michael Sternklar and Bank of America executive Brian Mearns are also slated to appear.

Despite its best efforts to pry away from the DoJ's anti-trust claims, Oracle's attempt to take over PeopleSoft still faces many hurdles, including the shareholder rights "poison pill," PeopleSoft's Customer Assurance Program, and a potential antitrust challenge from the European Union.