Eat ... Or Be Eaten

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In a tech industry in which news seems to trudge to the same dreary drumbeat--a relentless sales downturn, profits stagnant at best, venture capitalists with their wallets shut tight--at least Larry Ellison can still come up with a surprise. The founder of Oracle--one of the world's richest men, with company stock worth more than $17 billion--spent last week pushing a hostile bid to take over rival business-software firm PeopleSoft for a lowball price of $16 a share--about 50¢ less than the market value of the stock. Neither analysts nor competitors seemed sure whether to take him seriously. "Larry's just having some fun with these people," says Jim Goodnight, CEO of software firm SAS, based in Cary, N.C. "He's trying to mess up sales they're trying to close before the end of this quarter."

The 8,200 employees of PeopleSoft, based in Pleasanton, Calif., were not amused. CEO Craig Conway, 48, himself a former Ellison protege, had just successfully negotiated a $1.7 billion merger deal with another rival, Denver-based J.D. Edwards. That was supposed to be the big story in the software business. Then Conway's customers started talking about the Oracle offer and whether they should postpone purchases until things settled down. Even after the PeopleSoft board concluded there would be antitrust problems with an Oracle takeover, Ellison was still pressing the deal on PeopleSoft shareholders. By the end of the week, PeopleSoft and J.D. Edwards had launched lawsuits against Oracle. "I've observed his business practices before and not agreed with them," says Conway. "But this is a whole new level of Larry behavior."

And Ellison? The Oracle chief, 58, can't deny he's having fun. "I love flying planes and racing boats," he says. "This is more challenging." But at the same time, he insists, he is deadly earnest about PeopleSoft--and adds that other similar offers may be on the way. "The industry went a little mad over information technology; now we have to adjust," Ellison says. "Companies are going to get gobbled up, absolutely."

Even assuming PeopleSoft fends off his offer, Ellison may yet have the last laugh. This is the era of consolidation in computerland. Companies like IBM, Microsoft, Yahoo and USA Interactive have spent billions of dollars snapping up smaller competitors. Others, like Palm and Handspring, have tried to stave off the hungry advances of these giants by merging. Now it's the turn of Ellison's realm, the complex world of business software, to go through some serious cyclical slimming. The outcome will be crucial to owners of widely held tech stocks and people who use their products, which includes just about everyone.

"When the economy isn't allowing you to get any bigger, the risk of staying a small fish in the pond is pretty big," says Tom Topolinski, vice president of the Gartner research firm. Already, 25% of the software manufacturers in existence in 2000 have disappeared, mostly by burning through their venture-capital cash. Gartner predicts another 25% will vanish by the end of 2004 through waves of mergers and acquisitions. The recovering stock market is boosting the shares of stronger tech firms more than those of weaker rivals, so there are plenty of bargains around for those whose pockets are still deep.