Prepare Now for Oracle's Takeover

Despite numerous legal and regulatory hurdles, more and more analysts are advising their clients to prepare for Oracle's acquisition of PeopleSoft, especially those who are JD Edwards customers.

Last week, a federal judge rejected the U.S. Department of Justice's effort to block Oracle's takeover bid for PeopleSoft. The 164-page ruling handed Redwood Shores, Calif.-based Oracle a major victory in its $7.7 billion plan to take over the rival software provider.

And while no one is claiming total victory just yet, market analyst groups like Forrester Research, Yankee Group and META Group are advising their clients this week on how to best deal with an enterprise resource planning (ERP) world dominated by market leaders SAP AG and Oracle.

"As Oracle tries to complete the takeover, PeopleSoft customers must learn to live with a level of uncertainty regarding the future of their software applications and maintenance services," Forrester Research Vice President Paul Hamerman said in a briefing sent to investors Tuesday.

"Enterprises are experiencing FUD - fear, uncertainty and doubt. They wonder whether they picked the right ERP vendor. They want to know what will happen in future -- regardless of what ERP vendor they use," Yankee Group analyst Mike Dominy told internetnews.com.

During a conference call with clients and the press, David Yockelson, META Group senior vice president, said the judge's decision is "a great concern, as choice is being wiped off the board." But even if all the deal goes through, he said, "Oracle must still make the acquisition work and ultimately drive growth as a result."

Several roadblocks remain. The government is expected to file its appeal within 60 days. PeopleSoft is preparing its own lawsuit in November to prevent the takeover. The European Commission also is waiting to weigh in on the acquisition after asking for another round of documents from Oracle. PeopleSoft has a poison pill clause in its charter, as well as its Customer Assurance Program. Ultimately, to avoid a proxy war, shareholders must be fully convinced the deal would be beneficial.

PeopleSoft is still attractive to other companies. Approximately $1.6 billion, or one third of its value, is in cash. The company has a number of assets, including its customer base and CRM applications. There is also the asset base of JD Edwards -- and, of course, the competitive fear of Oracle.

Many of the analyst firms have suggested a second company or "white knight" could emerge and offer a price more competitive than Oracle's $21 per share tender offer. Microsoft continuously tops the short list in many circles. Accenture, IBM and HP have also been mentioned, but are less likely, because the price is likely set too high for other suitors. Yockelson suggests that PeopleSoft could still be saved through a holding company or venture capitalists.

"Given PeopleSoft's actions and posturing to date, it is unlikely that it will simply give up," Yankee Group's Dominy said. "PeopleSoft can save itself if the EC rules against the merging of Oracle and PeopleSoft."