Update: J.D. Edwards CEO slams Oracle merger bid

Bob Dutkowsky used sharp language to attack the idea

DENVER -- With a proposed merger with PeopleSoft Inc. imperiled by Oracle Corp.'s hostile $5.1 billion bid to buy out PeopleSoft (see story), J.D. Edwards & Co. plans to continue with business as usual -- at least as much as that's possible with the current uncertainty about the ultimate disposition of both transactions.

At a news conference here this morning at the company's Quest 2003 user conference, J.D. Edwards Chairman, President and CEO Bob Dutkowsky let Oracle and its CEO Larry Ellison have it with both barrels, saying, "Culturally, we are very different. We care about customers and our employees" -- a dig at Oracle that drew laughs from the audience. "Our values are very different."

Late this afternoon, Ellison released the text of a letter to PeopleSoft President and CEO Craig Conway in which he noted "that you have taken a negative position with respect to the merits and motivations behind our offer before you and the PeopleSoft board have taken the time required to consider the offer."

Ellison also raised the possibility that legal action could be brewing with PeopleSoft, referring in his letter to "a notice we just received with respect to your intention to commence litigation against us."

It wasn't immediately clear what notice Ellison was referring to.

Earlier in the day, Dutkowsky had pointed out that from a product standpoint, J.D. Edwards' business is built around application software, not databases and middleware as Oracle's is. And Dutkowsky said he believes both his company and PeopleSoft are financially healthy, largely free of debt and a complement to each other.

His view echoes Conway's reaction last week, when he denounced Ellison's move as a bit of "atrociously bad behavior from a company with a history of atrociously bad behavior."

Oracle has said that if its bid for PeopleSoft is successful, it may not pursue the $1.7 billion J.D. Edwards merger announced one week ago (see story). But Rick Allen, J.D. Edwards' chief financial officer, said the deal with PeopleSoft will go through. He still expects that merger to close in the third quarter.

The proposed merger of Oracle and PeopleSoft would create the second-largest global business application maker, after SAP AG. That, in itself, might derail Ellison's plans, Dutkowsky said, pointing to antitrust issues likely to come before the U.S. Department of Justice and the European Union.

Dutkowsky claimed that the buyout proposal was "financially motivated" and a "risky maneuver" that will probably be blocked by at least one government agency. According to documents Oracle filed with the U.S. Securities and Exchange Commission, the further development of PeopleSoft's applications will stop, he said.

"This elimination of a competitor's products and ongoing development would reduce customer choice. ... This harm to customers is exactly what the antitrust laws are intended to protect them from," he said.

In its SEC filing today, Oracle said its deal would expire at midnight EST on July 7 unless it is otherwise extended. (Oracle said it expects to extend the offer.)

Within 10 business days of today's formal offer to purchase, PeopleSoft is required by law to tell shareholders -- and file its response with the SEC -- and explain what action, if any, it plans to take with regard to the offer. The most significant conditions of the offer call for a majority of PeopleSoft's shares, on a fully diluted basis, to be tendered and not withdrawn and the invalidation of PeopleSoft's shareholder rights plan. That would prevent existing shareholders from buying shares cheaply, which might make a takeover more difficult and expensive because it would dilute the shares held by the hostile parties.

According to the filing, Oracle and PeopleSoft began talks Thursday about the possibility of combining the application businesses of the two companies. Oracle said the discussions were "general in nature" and no valuation was discussed. However, on Saturday, the CEOs of the two companies had a brief telephone conversation in which they decided they couldn't reach a mutually acceptable decision on the matter.

Because of Oracle's low bid price for PeopleSoft, Dutkowsky said today, "You've got to question how serious they are about buying PeopleSoft."

Analysts have offered mixed opinions.

No matter what happens now, the users of all three companies' products are probably going to find that their lives are more difficult, said Joshua Greenbaum, an analyst at Daly City, Calif.-based Enterprise Applications Consulting. "Having said that, even with no endgame in sight, I don't think buying decisions should or will stop," he said. The main goal for all three companies will be to preserve their respective installed bases in order to keep upselling to them, whatever else happens.

Both PeopleSoft and J.D. Edwards users have said they don't think this is a good idea.

"It's not a technology play, it's about getting to be one and two [in the market and] to make a two-horse race against SAP," said Kate Kelsay, a business process analyst at a construction firm and vice president of the J.D. Edwards Rocky Mountain user group. Her company, which she declined to name, uses J.D. Edwards World and OneWorld XE.

"It sounds like Oracle wants to eliminate PeopleSoft as a brand, incorporating the technology into Oracle's products," Kelsay said. "It seems to me that losing a choice in the high-end applications market would be a bad thing for consumers. It also sounded like Oracle isn't interested in J.D. Edwards, and it's hard to say if that's a good thing for it."

"The Oracle announcement certainly adds a higher degree of complexity as to the outcome of this possible transition period," said Dave Watts, president of Quest, the J.D. Edwards users group, in a statement on the organization's Web site. "Obviously, customers worldwide are following this closely. Quest will remain abreast of the situation and continue to provide information to J.D. Edwards customers."

Oracle users offered mixed opinions. "Oracle Corp.'s offer to purchase PeopleSoft Inc. would have a positive long-term impact on Oracle applications users," Arthur Hunt, president of the independent Oracle Applications User Group (OAUG) in Atlanta, said in a statement last week. "We would expect the purchase to expand Oracle's ability to produce new applications, improve existing ones and enhance the need for organizations serving the Oracle users community."

"I am undecided as of now only because I have not had enough time to become informed on the merger implication," said one Oracle user who spoke on condition of anonymity. His company, a manufacturer of chemical products, runs Oracle database and one of its ERP applications.

"In general, though, I am a fan of competition. I dislike it when a predator wants to devour a smaller player," he said. He also noted the purchase could prove to be very expensive for Oracle. "I would be very surprised if Oracle could pull this off. I will be surprised if Oracle takes it as far as a vote to the shareholders."

Computerworld's Linda Rosencrance contributed to this report.

Copyright © 2003 IDG Communications, Inc.

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