PeopleSoft Accepts $10.3 Billion Offer from Oracle
There is an old joke in which an old man asks a young woman if she would sleep with him for $1 million, and she agrees. He then offers her $20, and she's insulted. He, then, notes that they have established what she is, and now they're just haggling over the price. Much the same can be said of the 18-month saga between Oracle and PeopleSoft, which ended Monday when the latter agreed to a 10% hike in the latest offer. PeopleSoft was always for sale; it was just a matter of getting the price right.
Back in June of 2003, Oracle made its first offer for PeopleSoft, and the price agreed to earlier this week, $26.50 a share, represents a 75% premium over the price back then. In other words, the PeopleSoft crowd made out nicely. Additionally, PeopleSoft's people can expect job losses. And what does Oracle get in exchange? Nearly $3 billion in revenue isn't a bad start, and almost 13,000 additional customers helps insure that the revenue keeps recurring. At the end of the day, shareholders should see an extra 8 cents per share in earnings by May 2006 if Oracle's number-crunchers are right.
To put this in perspective, Oracle's first quarter numbers for the period ended November 30 (they have an odd calendar) just came out. The company showed earnings of $815 million, 16 cents, which is up a third over the same quarter last year. PeopleSoft's additional 8 cents is significant, but not overwhelming. Yet, there was Oracle saying it wouldn't pay more than $24 a share, and PeopleSoft's management saying $31 a share was fair value.
All the while, there was SAP, the German software competitor, taking the largest share of the market. Just as J.D. Edwards sold out to PeopleSoft because it wasn't big enough, PeopleSoft had to go. It is a classic case of market consolidation in a maturing industry, in this case software that automates back office processes. As Eugene Walton of Walton Holdings, an independent technology stock research firm, told Reuters, the merger deal "tells everyone else in the software business that it truly is a no-growth business."
So, in the end, PeopleSoft was always a takeover target, and Oracle had the size and bank balance to make the deal happen. All of the acrimony, drama and hysteria that followed the initial offer turned out to mean nothing. It was all a matter of price.
© Copyright 2004 by
The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without
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