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
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.”
Reading the Tea Leaves
The biggest fear expressed by analysts is that acquisition or no, JDE
customers are getting the short end of the stick. The PeopleSoft acquisition of
JDE prompted Oracle to up its timetable for the unsolicited bid for PeopleSoft.
“JDE-specific discussions have been conspicuously absent all along,”
Yockelson said. “Arguably, Oracle should focus more attention on JDE’s
capabilities and market, since it is likely to grow faster. Bottom line is,
JDE customers are in the most precarious position.”
During a META briefing, one anonymous caller using the JD Edwards AS400
World products — and Oracle for domestic business — commented that his
company is one of those in a precarious position, as he has three
installations in Europe. Yockelson and his staff pointed to Oracle’s promise
that it will allow more seats to be purchased for PeopleSoft applications
and it will make some “selective improvements” to include migration between
the two company’s products. But Oracle has said it would not actively market
the old products to its customers.
Much of what will happen to specific modules or code for PeopleSoft or JD
Edwards is, of course, speculation at this point. But overall, the analysts
are suggesting that customers should proceed with caution on new licenses.
Forrester suggests PeopleSoft customers should be aware of the inherent
risks of licensing software at this time, in terms of potential adverse
scenarios related to Oracle’s plans to stop marketing the products.
Forrester also suggests clients stabilize their environments. While
ongoing support is likely to be better for current versions than for older
versions for any of the PeopleSoft product lines, an upgrade to a current
version probably wouldn’t hurt.
“If you are on a version of PeopleSoft that is meeting your needs, you
are likely to be less interested in enhancements that are supported by
maintenance fees,” Hamerman said in a brief. “Oracle has indicated that
enhancements may be minimal in any case if it acquires PeopleSoft. Press for
lower-cost maintenance services that are better aligned with your needs
(e.g., patches, regulatory updates, technical support). If either PeopleSoft
or Oracle is unable to offer a more flexible and cost-effective maintenance
program, look at third-party options that are beginning to appear.”
The META Group also suggests the answer depends on what functions
are required.
“PeopleSoft is considered a best of breed CRM solution, with the majority
of its customers reporting they are very comfortable with their service,”
Liz Roche, META Group vice president of Technology Research Services, said
during a phone briefing. “That tactical solution should be maintained by
Oracle. The same thing applies to PeopleSoft’s Human Capital Management
software.”
For companies using PeopleSoft finance products, Roche suggests current
PeopleSoft users should stay put or consider upgrades to PeopleSoft
Financial Management version 8.8. Newer customers should be more wary
because Oracle has said in the past that newer versions would include
functions that reflect the new tax and legal regulations. However, META said
that Oracle was not specific on how it would impact the PeopleSoft product
line.
The market analysts also suggest that a third-party maintenance market
could emerge for PeopleSoft customers. PeopleSoft had been criticized for
high maintenance fees and could suffer even more relief if Oracle acquires
the company, analysts said.
Faced with the prospect of increasing maintenance fees and uncertain
levels of support from Oracle, lower-cost support options from third parties
may become attractive.
“Assuming the EC gives Oracle the green light and Oracle presents an
attractive price to shareholders, PeopleSoft should stop fighting,” Yankee
Group’s Dominy said. “The PeopleSoft management team answers to the
shareholders and must look out for the shareholders. Customers matter, of
course, too, and ensuring that customers will be well cared for must be a key
part of the deal.”
Ultimately, if there is a big win in this situation, analysts unanimously
point to German-owned SAP. META Group and Forrester both say SAP will
continue to benefit from the takeover battle, experiencing solid
applications licensing growth, while both PeopleSoft and Oracle struggle.
META’s analysts said
the stress of acquisition has already taken hold. The research firm pointed
out that SAP America announced a deal with outsourced payroll and human
resources services provider ADP . The partnership announced
Tuesday will let businesses manage HR and payroll functions through SAP
Business One, if they so choose.
In related news, for its fiscal first quarter earnings, Oracle reported
net income growth of 16 percent to $509 million while, revenues were up 7
percent to $2.2 billion compared to the first quarter last year. Analysts
surveyed by Thomson First Call expect the company to post earnings per share
of 13 cents on revenue of $2.66 billion in its second quarter.
