Market madness

The calm seas of the enterprise software market have turned into shark infested waters, as the big fish attempt to snap up the little. Just who will come out on top remains to be seen, but until then confusion reigns supreme.

  • E-Mail
By  Matthew Southwell Published  June 22, 2003

I|~||~||~|Up until June 2, it was business as usual in the tier one enterprise software market. SAP, Oracle and PeopleSoft were leading the way, with JD Edwards bringing up the rear. Then it all changed, as PeopleSoft unveiled plans to acquire JD Edwards for approximately US$1.7 billion.

Combined, the companies would form the second largest enterprise applications software player in the world and boast approximately US$2.8 billion in annual revenues, 13,000 employees and more than 11,000 customers in 150 countries. For PeopleSoft, the deal would also enable it to expand its presence in more than 20 industries, including a broad range of services, manufacturing, distribution and asset intensive sectors.

“The combination of JD Edwards and PeopleSoft is a winning one... Both mid-sized and large enterprise customers will have access to the broadest suite of integrated enterprise software applications in the world,” said PeopleSoft’s president & CEO, Craig Conway.

The JD Edwards team was equally happy, as a merger with PeopleSoft would leapfrog it up the enterprise resource planning (ERP) vendor rankings and open the door to enterprise accounts.

“JD Edwards and PeopleSoft can do more together than we could achieve as separate companies… We believe that this merger is a perfect match between two extraordinary and highly complimentary companies,” said Bob Dutkowsky, chairman, president & CEO, JD Edwards.

Dutkowsky was not the only one to see the potential of the deal. While Gartner Group flagged the obvious integration problems that merging the two entities would create, it also reported that the deal was not only viable, “but represents the evolution of the combined market and product strategy that will have the greatest impact on enterprises.”

Meta Group was equally positive about the merger, claiming that both sets of customers would benefit from the two vendors’ complementary application functionality.

In fact, so convincing was the deal that it looked like a new company would emerge to sit behind SAP, ready to tackle the German enterprise software giant and challenge for the number one spot.

Oracle, however, had other plans. A week after the PeopleSoft/JD Edwards announcement the database giant unveiled a cash tender offer for all of PeopleSoft’s outstanding shares. The US$16 per share deal would be worth approximately US$5.1 billion and, according to Larry Ellison, Oracle’s chairman & CEO, would make Oracle “an even more profitable and competitive company.”
Key to this rapid ROI was Oracle’s decision to cease the active selling of PeopleSoft products, should their offer be accepted. “We expect there to be minimal business integration risks as we will not be integrating the product line. However, we expect to substantially reduce costs,” confirmed Jeff Henley, executive vice president & CFO, Oracle.

||**||II|~||~||~|Instead of upgrading along the PeopleSoft roadmap, users would be invited to migrate to Oracle’s E-Business Suite for free. At the same time, Oracle offered to sweeten the deal by extending the support period for PeopleSoft version 7 beyond its current December 2003 deadline. Furthermore, Oracle argued that a merger with it, rather than JD Edwards, offered PeopleSoft’s shareholders higher value at lower risk. The PeopleSoft board was less than impressed and advised shareholders against accepting it. Conway, on the other hand, deemed the offer as nothing short of meddling, calling it “a transparent attempt to disrupt the acquisition of JD Edwards by PeopleSoft.”

JD Edwards also got in on the act, explaining to all concerned that the Oracle offer was riddled with antitrust issues and would limit customer choice.
“Oracle’s hostile tender offer will eliminate at least one of Oracle’s major competitors in several market spaces to the obvious detriment of customers…

This harm to customers is exactly what antitrust laws are intended to protect against. I believe Oracle’s attempted takeover of PeopleSoft raises serious questions about their commitment to customer choice,” said Dutkowsky.
Ellison countered both arguments, stating that Oracle had been tracking PeopleSoft for some time and that Conway himself had approached Oracle over a possible merger between the two software giants in 2002.

“About a year ago, Craig Conway approached me and Oracle about combining the PeopleSoft application business with the Oracle application business. At that time, about a year ago, we were unable to agree upon a structure. [However,] we have continued to follow PeopleSoft very closely,” he said.

Since then, the proposed deals have turned into a bun fight of epic proportions. At the time of going to press, PeopleSoft had launched and withdrawn one course of legal action before entering a second suit in Alameda County Superior Court, alleging that Oracle has engaged in unfair business practices and is guilty of libel and tortious interference with PeopleSoft’s customer relationships.
JD Edwards has also filed suit against Oracle, claiming that the vendor has interfered with the proposed PeopleSoft merger. It alleges that Ellison and Chuck Phillips, Oracle’s executive vice president, have engaged in wrongful conduct and seeks US$1.7 billion in compensatory damages and an unspecified amount in punitive damages.

||**||III|~||~||~|Oracle’s response to these filings has been sanguine, with company spokesperson, Jim Finn, saying that the cases have no merit and that the company is “disappointed that PeopleSoft’s board has put the self-interest of management over the best interests of PeopleSoft shareholders.”

While the war of words continues, JD Edwards and PeopleSoft have already begun work on integrating their operations. Tim Caulkett, Middle East regional director for JD Edwards, reports that JDE global executives would be working at PeopleSoft headquarters from June 16 onwards to plan the integration of the two companies ahead of the 120-day due diligence period.

Such action indicates that both PeopleSoft and JD Edwards are confident the Oracle offer will disappear and that they will be able to carry out the original merger. A number of analysts concur. For example, Betsy Burton, a vice president & research area director at Gartner Group suggests that the current Oracle offer, “doesn’t have the legs” to succeed and only a higher offer would make the deal realistic. Elsewhere, Fran Howarth, practice leader for enterprise business applications at Bloor Research, says she will “eat my hat if Oracle gets it.”

Whether or not Oracle succeeds in persuading the PeopleSoft shareholders to go against its board and accept an improved offer, the damage has already been done. The hostile takeover has not only increased Oracle’s profile in the application space, but it has also raised questions about PeopleSoft’s viability as an independent vendor.

As such, competitors to all three vendors are salivating at the prospect of disgruntled customers. Although SAP’s official line is that it is unwilling to comment on its business rivals activities, a few of its spokespeople have escaped the net and stated that the German software giant is looking to target both PeopleSoft and JD Edwards customers. Furthermore, the company has embarked on a global advertising campaign to tempt its rivals’ clients to defect.

“With all the industry news… there has been a lot confusion that has left them wondering what this means for them,” says Laurie Doyle Kelly, a SAP spokeswoman. “SAP wants people to know SAP has alternatives,” she adds.
Both Bloor’s Howarth and Gartner’s Burton confirm that SAP is likely to be the main beneficiary of these market shenanigans. However, James Governor of analyst firm Red Monk argues that the real long term winner will be IBM, as he believes that PeopleSoft and JD Edwards are merging to position themselves as Big Blue’s preferred application partner.

||**||IV|~||~||~|Such a view makes sense considering JD Edwards’ large installed AS/400 customer base and its commitment to Big Blue’s middleware offerings. Furthermore, such a partnership, no matter how loosely defined, also creates a viable alternative to Oracle’s long standing alliance with Sun.
Howarth concurs and observes that “JD Edwards has been very close to IBM for many years and is pretty much an IBM shop, while PeopleSoft is pretty much built on open standards.”

While neither IBM nor JD Edwards have denied this theory, their responses have been woolly at best. The latter talks about delivering on all platforms to maximise customer choice, while Big Blue’s local office delivered the following statement: “Both companies [JD Edwards and PeopleSoft] have been valued partners of IBM, and we expect that relationship to continue. We look forward to continuing to work with them to deliver solutions to our customers. However, it would be inappropriate for us to speculate on the details of the agreement.”

The local impact of PeopleSoft, JD Edwards and Oracle’s manoeuvring is also vague. Oracle’s senior marketing director for EMEA, Ayman Abouseif, says the vendor’s local operation is not allowed to discuss the situation, while PeopleSoft does not have a local office.

JD Edwards at least has managed to strike a positive chord, with Tim Caulkett arguing that the deals, mergers and hostile takeovers shouldn’t affect the vendor’s local plans, or its decision to spend several million dollars acquiring its UAE partner, Dalma Computer Systems (DCS).

“The short answer is that it makes no difference to the Middle East operation at all. We made the decision to acquire DCS some time ago and this [the PeopleSoft merger] was known and was part of the strategic planning. From a Middle East perspective it will make no difference whatsoever,” he contends.
Jyoti Lalchandani, regional director of IDC Middle East & North Africa concurs and says the “impact in the Middle East will be minimal.” However, he does warn that the local market may stall while the corporate shenanigans continue and that JD Edwards is likely to suffer more than the other vendors.

“This does, unfortunately, put a hold on a lot of investment in JD Edwards applications because there is a lot of uncertainty in the market,” he notes.
And, although JD Edwards is in constant communications with its local customers, it appears as though Lalchandani’s predictions are already coming true. For instance, Evan Powell, group IT director at Al Tayer Group, says that he has concerns over what the future holds, especially if Oracle remains in the picture. “[Oracle’s] takeover would possibly be good for their shareholders, but a disaster for PeopleSoft/JD Edwards customers,” he says.

||**||V|~||~||~|Furthermore, although the company has no plans to change vendors as yet, Powell says “if Oracle succeeds in taking over PeopleSoft, we will have to see how the situation unfolds.”

Local Oracle customers, on the other hand, appear to have no such worries. Part of this can be attributed to the vendor’s increased visibility as an application player in the region and its lengthy presence in the Middle East.

“If this acquisition does happen then it is as positive for me as an Oracle customer as it is negative for someone that is a JD Edwards customer,” says Ramesh Cidambi, senior manager for systems & information technology at Dubai Duty Free.

“In the event that it doesn’t go through then everything will be fine. The competitive landscape stays similar to how it is now with just consolidation between PeopleSoft and JD Edwards. I am not anxious or concerned about it in any way and it is one of those bold gambits that might succeed,” he adds.
Just how long it will take to establish which deals go through and who successfully emerges from the market madness is unclear. While Larry Ellison claims that things will be complete by the end of July, the end of Q3 or Q4 is a more realistic timeline.
||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code