Eat ... Or Be Eaten

(3 of 4)

After his fruitless talks with Ellison, Conway kept looking for a partner, and found it in J.D. Edwards. Their businesses were widely regarded as complementary. PeopleSoft tended to sell to high-end firms, J.D. Edwards to the middle market. Four days later, Ellison announced his competing bid for PeopleSoft. Coincidence? Conway thinks not. "If we were ever looking for confirmation that the J.D. Edwards merger was right for the industry," he says, "Larry provided it."

Some analysts concurred. Buying PeopleSoft, they said, would be a onetime adrenaline boost for Oracle, nothing more. The companies are not a natural fit since both are heavily invested in the back office. The only way it makes sense is if Ellison is taking a leaf from the Microsoft playbook: getting bigger, with less competition, is better. Although a combined Oracle-PeopleSoft would not rival SAP's user base, it would be in a more competitive position--and create an ever wider market for Oracle Database. "[Ellison] doesn't need PeopleSoft's products," says Reg King, an analyst for WR Hambrecht & Co. "But what's wrong with buying its customers?"

Some of those customers are not happy with the idea of being traded like poker chips. Conway says he has received calls of support from 26 of his customers' chief information officers. The majority, he claims, were indignant enough to consider switching from Oracle Database to its Microsoft and IBM rivals. The idea of Oracle splashing out $5.1 billion on PeopleSoft also unnerved investment analysts at Moody's, who downgraded the firm's outlook for Oracle from stable to negative; however, few investors followed suit. Oracle's stock rose to $13.48 at the end of the week, up 3% over the previous week's close.

Ellison has shown no signs of moving from his $16-a-share offer, even though PeopleSoft's stock ended the week at $16.92. In any case, as Kevin Parker, PeopleSoft's chief financial officer, contends, the board's decision to reject the bid is final. And because board members' terms are staggered, it would take a significant shareholder rebellion to overturn it.

The spat between Ellison and Conway would be little more than an amusing sideshow if not for two things. First, it shows the reach of Ellison's influence. He has been CEO of Oracle since 1977--several lifetimes in the tech industry--and a coterie of former Oracle executives, dubbed the Little Larrys, has fanned out to rule much of the business-software world. Conway, Siebel and Marc Benioff, CEO of Salesforce. com, a company that lets clients hire out its enterprise applications, are members of the Oracle alumni e-mail list. There is no love lost for Ellison among them: "He's not great at relationships," says Benioff. "He struggles ... in his personal and professional life." But the feeling is not mutual. "Even when I'm fighting them, I feel proud of these guys," says Ellison. "I would compare our alumni with that of the best business school."