"All warfare is based on deception." -- Sun Tzu


So, now that the Department of Justice has raised flags about Oracle's proposed takeover of PeopleSoft, do you think Larry Ellison still has any intention of purchasing PeopleSoft?

I don't.

Recent public statements would certainly lead one to believe that Oracle will continue to push on. But I think it's all a big ploy -- that there's a multi-tiered bluffing game occurring right now, managed by Larry, the Zen master of the software industry.

Is it really an accident that Oracle, after saying that its prior bid was final, upped it substantially to $26 a share on the eve of the department's initial recommendation against the sale? It was, after all, widely rumored for a number of weeks that Craig Conway and the PeopleSoft board had the government on their side. Is it possible that Ellison's initial, inflammatory statements when announcing his company's intention to acquire PeopleSoft and his intention to shut off product development and even support were calculated to inflame the emotions of people already against him?

With Larry Ellison, of course, anything is possible. I should qualify my statements by saying that I have no inside knowledge of what Oracle's plans are. No one outside of the Oracle boardroom (except maybe Melanie Craft) knows that for sure. But look at the facts:

 

  • The $9.4 billion price tag will clearly

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  • strain Oracle's finances.
  • Ellison's ego is huge, but does he really think he can defeat a determined Department of Justice?
  • There are plenty of other potential acquisition targets available with less legal baggage and more attractive pricing.
  • PeopleSoft is ahead of Oracle in the enterprise software market (at least according to the department's very narrow definition of the market -- but that's another column).

No doubt it makes sense for Oracle to continue advertising its intentions for PeopleSoft. The longer Oracle continues the pursuit, the more time PeopleSoft's management and board must spend defending their decision to turn down Oracle's now-lucrative offer. And if PeopleSoft shareholders vote March 25 to accept Oracle's offer (a very real possibility, unless Conway and company can get the stock up considerably), blocking the buy could become a very different and much more difficult battle for the Department of Justice.

All of this activity puts intense pressure on Craig Conway and the PeopleSoft board, and little to none on Oracle. The fact that many (including yours truly) believe that Justice's action is ill-advised and based on an overly narrow view of the enterprise software industry is irrelevant. All that matters is that PeopleSoft, despite its public pronouncements, is highly distracted and weakened by the battle. Ellison, if anything, seems to be relatively entertained.

At the same time, this isn't just about PeopleSoft -- it's about the enterprise software market in general and the consolidation that must take place. In the war for market share, PeopleSoft is only a skirmish and, one way or another, Oracle will eventually need to move on. I submit that perhaps it already has. While Oracle would no doubt love to have PeopleSoft -- at a reasonable price -- it has plenty of other options.

Such as? Companies that, unlike PeopleSoft, are trading at a low market capitalization and possess a leading position in the market (the only market in which PeopleSoft is No. 1 -– and this is debatable -- is human resources). In my humble opinion, the ideal candidate becomes none other than Siebel Systems.

This is not the first time I've made this prediction -- that Oracle and Siebel would be a perfect match. The first time I made it, I heard from many who believe that the personal animosity between Larry and Tom is too great.

I believe that the antagonism between the two is heavily played up by the media -- after all, it makes great press. But I also believe that Siebel is perhaps the most pragmatically managed company in the enterprise software industry. Yes, Siebel loves to win, but it would also be happy to sell -- if the price was right.

Besides, Larry's a newly married man, and it could be presumed that he's more willing now to ride off into the sunset. And who would be the best candidate to run Oracle after the Zen master departs than one of his former disciples? That could, of course, describe either Craig Conway or Tom Siebel -- but I'm betting on the latter. While we all speculate, the biggest potential losers, PeopleSoft's shareholders, will have their say at the end of March.

Chris Selland is managing director and founder of Cambridge, Mass.-based Reservoir Partners LP. A research and consulting firm, Reservoir Partners helps companies define, prioritize and execute customer-facing relationship management strategies. Contact Chris at cselland@reservoirpartners.com.

This was first published in February 2004

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