News Stay informed about the latest enterprise technology news and product updates.

PeopleSoft cozies up to IBM, stands firm against Oracle

Attendees at PeopleSoft's user conference expected to hear a lot about Oracle, but they also got a healthy dose of IBM.

SAN FRANCISCO -- An IBM-PeopleSoft Inc. middleware partnership shared the spotlight with Oracle's looming takeover threat at PeopleSoft's annual user conference today.

The agreement calls for the Pleasanton, Calif.-based vendor to bundle its software with IBM's WebSphere Application Server and for the companies to jointly invest $1 billion over the next five years in development.

The announcement led to speculation at the show that Big Blue might leap to PeopleSoft's rescue at the last minute. Tad Piper, an analyst with Minneapolis-based Piper Jaffray & Co., wouldn't rule out the possibility that IBM could be the "white knight" that saves PeopleSoft, but said IBM's traditional stance is that it is not in the applications business.

Have you ever had a bad dream that just wouldn't seem to end? We have -- ours has been going on for 15 months.
Craig Conway

"If I've learned anything from 15 months of [the Oracle-PeopleSoft saga], it's that nothing surprises me," Piper said.

Both companies, however, insisted that the partnership should be taken at face value.

"What you see is what you get here," said Steve Mills, senior vice president and group executive of IBM's software group. He added the Oracle's acquisition attempt neither encouraged nor discouraged IBM from partnering with PeopleSoft.

"No one knows the outcome of all the antics that are taking place," Mills said.

For his part, PeopleSoft president and CEO Craig Conway kicked off the user event by dedicating the first few minutes of his opening keynote address to Oracle.

"Have you ever had a bad dream that just wouldn't seem to end?" Conway asked. "We have -- ours has been going on for 15 months."

Conway then reiterated the words he wrote in a letter to customers earlier this month after the federal courts gave Oracle the OK to pursue PeopleSoft.

"[That decision] does not mean that PeopleSoft will be acquired by Oracle," Conway said, eliciting applause.

Technology takes center stage

But the majority of Conway's hour-long address focused on technology, not the takeover.

He outlined PeopleSoft's plan for helping customers prepare for the next wave of application development and delivery. Business software vendors are devising strategies that enable their customers to create and reuse application components that enable business processes.

With Web services and open standards, companies can create composite applications using software from multiple vendors or from in-house development efforts. For instance, in the sales process, reps often need executive approval for discounting deals. Web services could enable a CRM application to grab a component of a human resources system to access an organizational chart and then guide the rep to the proper managers for sign off.

Unlike competitor SAP AG, which has its own middleware offering called NetWeaver, PeopleSoft will rely primarily on IBM to deliver that piece of the service-oriented architecture puzzle. PeopleSoft will integrate WebSphere Portal, WebSphere Business Integration, WebSphere Application Server and WebSphere Studio Application Developer with its portfolio of applications.

"The strongest middleware company in the world is IBM," Conway said. "Their [middleware] products are exponentially more mature and they're already trusted."

The deal with IBM, however, isn't exclusive and PeopleSoft could forge similar pacts with other middleware vendors, including Microsoft.

Conway said that PeopleSoft will focus its efforts on the business process layer, helping its customers assemble industry best practice business processes through process modelers, process integration, analytics and data management. The company's joint development agreement with IBM will first tackle software for the telecommunications, financial services and insurance industries.

An answer long overdue

Analyst Piper said the IBM deal answers a question raised after PeopleSoft acquired rival J.D. Edwards & Co. last year. "This is a well overdue answer to 'what is your middleware strategy?'" he said.

Katherine Jones, an analyst with Boston-based Aberdeen Group, said the flexibility of PeopleSoft's applications enable it to partner on integration and focus on its core strengths.

"PeopleSoft should stick to its core talent," she said.

The technology talk sat well with the more than 11,000 customers in attendance, many of whom said they would prefer to hear PeopleSoft's applications plans rather than a rehash of the Oracle drama.

Rohana Meade, vice president of IT at Richmond, Va.-based AMF Bowling Worldwide Inc., called the potential acquisition "a backburner issue." She said it hasn't stopped her company from adding PeopleSoft licenses and investigating a possible rollout of human resources applications.

"Until something changes, I'm going to assume [PeopleSoft] is the way we're going," Meade said. AMF is a former J.D. Edwards customer that runs PeopleSoft's EnterpriseOne and World product lines.

Ironically, Meade said she was meeting with her PeopleSoft representative when U.S. District Court Judge Vaughn Walker gave Oracle the green light to proceed with its $7.7 billion takeover bid. In his ruling, the judge rejected the Department of Justice's argument that a PeopleSoft acquisition would limit the choices of companies looking for software to automate business processes, such as managing customer relationships and human resource activities.

Ted Weirich, MIS manager at Larson Manufacturing, which runs PeopleSoft's Enterprise software line and Oracle databases on the back end, said PeopleSoft users would be better served if the company wasn't acquired.

"Hostile takeovers don't work very well," Weirich said. "It's a bad idea, reducing competition."

Oracle waits in the wings

Oracle's cash offer, which currently stands at $21 per share, is due to expire on Friday. However, since first launching its takeover bid in June 2003, the Redwood Shores, Calif.-headquartered database giant has repeatedly extended the deadline for PeopleSoft shareholders to tender their stock.

At least one financial analyst said the takeover serves investors well.

"If [PeopleSoft] wants to help its shareholders, it should take the $21," said Charlie DiBona, a financial analyst with Sanford C. Bernstein & Co.

From the outset, however, PeopleSoft has resisted the Oracle takeover. It continues to reject Oracle's request to meet face to face with the PeopleSoft board and to implement measures that would make the acquisition more expensive.

Last year, PeopleSoft instituted a customer assurance plan that promised refunds if the company was acquired and its products discontinued. That program would jack up the price of the deal by $800 million, according to analyst estimates. More recently, PeopleSoft made the acquisition still costlier by upgrading employee severance packages and accelerating stock option vesting.

Oracle responded quickly on Tuesday saying the move did not necessarily increase the cost of the takeover.

"This necessarily lowers the value of PeopleSoft and is just the latest in a long string of measures that takes value away from the PeopleSoft shareholders," Jim Finn, Oracle vice president, said in a release.

The extent of Oracle's commitment to PeopleSoft products depends on whom you believe. Oracle has said it would support the applications for 10 years, longer than PeopleSoft would. PeopleSoft, however, makes a distinction between simply supporting software and enhancing it. It also says Oracle's ultimate goal is to push users to its own E-Business Suite.

The federal judge's decision may have been Oracle's most significant obstacle, but it's not the only one. The European Commission still needs to weigh in on the deal, though it usually sides with U.S. antitrust authorities. And two other court dates related to the takeover are still on the calendar.

Next week, Oracle will ask a judge to remove PeopleSoft's so-called poison-pill defense, which enables it to issue new shares that dilute the stake that an acquirer has in the company. In November, a civil suit is scheduled to get underway in which PeopleSoft will argue that Oracle's takeover attempt was intended to disrupt its business. It's asking the court for an injunction and $1 billion in damages.


Get reaction from some PeopleSoft customers to the recent court decision

Read coverage of CEO Craig Conway's entertaining keynote at last year's PeopleSoft Connect

Dig Deeper on CRM strategy and implementation

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.