Oracle offers $5.1 billion for PeopleSoft

Oracle Corp. has put in a bid to buy out a competitor, PeopleSoft Inc., for approximately $5.1 billion. Analysts say the price is probably too low, and Oracle will have to significantly increase it to truly gain the PeopleSoft stockholders' attention.

Both Oracle and PeopleSoft are significant government contractors.

PeopleSoft currently has several outstanding contracts with the federal government, including the Navy's personnel management system, the Navy Standard Integrated Personnel System and the Defense Integrated Military Human Resources System, which is a Defense Department-wide system set to come online by the end of 2005. It is unclear exactly what would happen to those deals were the acquisition to go through.

Oracle is one of a handful of companies licensed by DOD through its Enterprise Software Initiative. Under the program, agency officials within DOD choose software that is widely used across several other agencies and negotiate licenses with vendors based on the expected number of users. DOD officials say the program has already saved about $1 billion.

Oracle's offer equates to about $16 per share.

David Yockelson, an executive vice president and director of technology research services for Meta Group Inc., said the bid price for PeopleSoft is too low based on the firm's recent performance. The company closed at $15.11 per share on June 5, before the acquisition offer was made, but opened the morning of June 6 at $18.47 per share. The company was trading steadily between $18.20 and $18.75 per share through late morning.

"The acquisition of PeopleSoft will immediately make Oracle an even more profitable and competitive company," said Larry Ellison, Oracle's chief executive officer. "Although we will not be actively selling PeopleSoft products to new customers, we will provide enhanced support for all PeopleSoft products."

Ellison said the company would continue to support customers of PeopleSoft 7, as well as offer migration to the Oracle e-business suite of products, but would no longer sell any PeopleSoft products.

"We're asking ourselves if this is a good deal," said Yockelson. "It might be for the stockholders, assuming Oracle comes through with a higher bid, but it probably would not be for the PeopleSoft customer."

Yockelson said Ellison was clear in his statement that Oracle would support PeopleSoft customers for a time, but would probably ultimately look to bring them all under the Oracle e-business suite umbrella.

PeopleSoft earlier this week announced its intent to buy J.D. Edwards & Co., which would make the combined entity the world's second largest enterprise application software company. That deal, to be paid in stock to J.D. Edwards shareholders, is valued at about $1.7 billion, based on PeopleSoft's May 30 closing price.

It was not clear whether Oracle's offer to buy PeopleSoft would impact the latter company's acquisition of J.D. Edwards.

Yockelson said the there is no certainty, assuming the Oracle purchase goes through, that J.D. Edwards would be any part of the new entity.

"Oracle has made it very clear that their acquisition of PeopleSoft is in no way dependent on PeopleSoft and" J.D. Edwards, he said.

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