Oracle Softens up PeopleSoft

After 18 months of lawsuits and very public wrangling, Oracle Corp. finally roped software rival PeopleSoft Inc., proof positive that Larry Ellison's hardball tactics would get his company just what it put at the top of its Christmas list.

The deal, which will cost Oracle $10.3 billion (or $26.50 in cash for each PeopleSoft share) puts Oracle one step closer to tackling its biggest rival, Germany's SAP. That's good news for PeopleSoft investors after the company's shares closed at $23.95 on Friday. The merger also continues the consolidation of the business software market that started last year when PeopleSoft snatched up JD Edwards.

CBS.MarketWatch.com noted that "Monday's capitulation by PeopleSoft's board is a substantial victory for Oracle Chief Executive Larry Ellison, who has stated repeatedly that the business-software industry is overdue for consolidation. He targeted PeopleSoft for its recurring license revenue and its customer base in the applications market." And from the man himself: "This merger works because we will have more customers, which increases our ability to invest more in applications development and support."

The Washington Post reported that "commentators today seemed convinced the fight was over. Oracle, a database specialist, originally moved on PeopleSoft in an effort to improve its competitive position against global giant SAP A.G. of Germany." Ellison, speaking on CNBC this morning, said the merger will increase Oracle's sales capacity by 50 percent and make Oracle a "very, very strong No. 2 in the global applications business."
• CBS.MarketWatch.com: Oracle, PeopleSoft Agree To Merge
• The Washington Post: Oracle To Acquire PeopleSoft (Registration required)
• Oracle statement
• PeopleSoft statement

CNET's News.com wrote about the implications of the marriage: "The deal will create a major force in the software world, and could bring significant customer revenue to Oracle. There has been concern among PeopleSoft customers that Oracle would no longer continue support for various PeopleSoft applications, including ones acquired from PeopleSoft's purchase of rival software maker J.D. Edwards. But last week, Oracle President Safra Katz said the company would 'oversupport' PeopleSoft's existing 12,750 customers to help keep their business if a merger were clinched."
• CNET's News.com: Oracle Buys PeopleSoft For $10 Billion

The deal received board approval at both companies and is expected to go forward next month, the AP and other outlets reported. As for any outstanding lawsuits, they will be shelved after the deal is completed. Reuters gave more background on how Oracle had to sweeten the pot. "Oracle... launched the takeover battle with an offer of $16 a share, or about $5.1 billion, in June 2003. At that time, PeopleSoft shares were trading at $15.11. This is the largest acquisition by far for Oracle, which preferred to build rather than buy."

Ellison told CNBC that Oracle upped its offer from $24 a share, which it had said before was its final offer, because he wanted to make sure the deal was perceived as "friendly" and because the company didn't know the full details of PeopleSoft's business. It turns out that the rival business "was even more profitable than we thought." But the deal might not be a victory for workers. Ellison told CNBC there would be some job losses at PeopleSoft and Oracle over the deal, but did not provide specific numbers.
• Reuters: PeopleSoft Relents, Agrees To Oracle Bid

The Financial Times gave a good primer on why the deal surprised the press and investors, despite being an ongoing tit-for-tat for a year and a half: "In a saga that started a year and a half ago and which has seen Oracle win out against US competition regulators in court and the departure of PeopleSoft's defiant chief executive, the final twist proved to be the biggest surprise of all. PeopleSoft has rejected five Oracle takeover bids, maintaining that Oracle's last offer of $24 a share did not value the company fairly. The battle had been set to continue this week as a court hearing in Delaware considered Oracle's request to ban PeopleSoft's 'poison pill' takeover defence. On Friday, the target company had given no indication of an agreement in the offing, saying it would hold its annual shareholder meeting on March 25 and nominating four current directors for contested board seats, setting the stage for a showdown with Oracle which had named candidates of its own."

And more details from an online dispatch by the Wall Street Journal: "Oracle Chief Executive Larry Ellison said his company was approached by PeopleSoft representatives, who indicated the board was interested in resolving the matter and negotiating a deal. The two companies hammered out a deal late Sunday, he said in a conference call Monday morning."
• Financial Times: Oracle Agrees To Buy PeopleSoft For $10.3 Bn
• The Wall Street Journal: Oracle Sets Deal to Acquire PeopleSoft for $10.3 Billion (Subscription required)

Meanwhile, Oracle also announced its second-quarter earnings today, logging climbing quarterly profit and revenue.

Browsing for Change

America Online is looking closer at browser power as it explores ways to boost its ailing online subscriber base. "As part of its reincarnation, America Online Inc. is creating its own software for browsing the Web and playing movies and songs. It's a question of staying relevant in an increasingly broadband world," the Associated Press reported. "The browser's core will be Microsoft Corp.'s market-dominant Internet Explorer." AOL financed Mozilla, the organization that came up with the competing Firefox browser, the AP noted, but said that "the company stuck with IE so users won't have to make 'a leap of faith.'"
• The Associated Press via The Washington Post: AOL Creates Its Own Browsing Software (Registration required)

Speaking of Firefox, the open-source browser has already been downloaded more than 10 million times as of this weekend, CNET's News.com reported. "The milestone highlights growing frustration with the security vulnerabilities that have dogged IE during the past few months. Nearly two dozen holes in the Web browser have been discovered during the fall, ranging in degrees of seriousness," CNET said. "Firefox's surge has helped Mozilla cut into Microsoft's dominance of the Web browser market, with the software giant's market share dropping to less than 90 percent. Dutch market researcher OneStat.com reported last month that IE's market share had slipped to 88.9 percent in the third week of November, down 5 percentage points from its share in May. Mozilla-based browsers, including Firefox, rose to 7.4 percent, up 5 percentage points from May."
• CNET's News.com: Firefox Surpasses 10 Million Download Mark

AOL isn't only tweaking its browser strategy; the company has plans to offer its original content to non-subscribers for free. The New York Post explained: "In a move both risky and essential, AOL is abandoning its strategy of exclusivity and will offer much of its music, sports and other programming for free to non-subscribers in hopes of boosting ad sales. The decision could help the company counter declining subscriptions as Internet users move to high-speed connections. The danger is that the bold new strategy will instead accelerate the erosion of AOL's core revenue source. To begin with, the change pits AOL against big guns Yahoo Inc. and Microsoft Corp., which in turn are looking over their shoulders wondering what search leader Google Inc. will do next."
• New York Post: AOL Goes After Ads With Freebies

The Ball's in Your High Court

The U.S. Supreme Court agreed to take a look at a key case pitting the entertainment industry against an online file-swapping site operator in a case that could have major implications for copyright law. The court's agreement to hear the case is a coup for the entertainment lobbyists, at least for now. From the New York Times: "For the entertainment industry and for everyday consumers, the case is likely to produce the most important copyright decision since the Supreme Court ruled in 1984 that the makers of the videocassette recorder were not liable for violating the copyrights of movies that owners of the devices recorded at home... The earlier decision, Sony Corporation of America v. Universal City Studios, ushered in one technological revolution. The new case, Metro-Goldwyn-Mayer Studios v. Grokster Ltd., No. 04-480, comes as another is already well under way. More than 85 million copyrighted songs and a smaller but rapidly growing number of movies are downloaded from the Internet every day by people using file-sharing services."
• The New York Times: Justices To Hear Case On Sharing Music Files (Registration required)

The Wall Street Journal said the court's review gives "the entertainment industry hope that it can overturn an adverse appeals-court ruling with implications for the fight against piracy. Justices will review an August ruling by the Ninth Circuit Court of Appeals that file-sharing companies aren't liable for copyright infringement that takes place within their networks. Three appellate judges found that file-sharing software has some legal uses, and the file-sharing companies can't control whether consumers are using it for legal or illegal uses."
• The Wall Street Journal: Supreme Court To Review File-Sharing Ruling (Subscription required)

Phones Ain't Our Bag, Baby

In an age when PCs, BlackBerries and wireless Internet surfing are common technologies throughout America, the New York Times found a small corner of Louisiana that doesn't have landline service at all. Many residents there have to use radio band-based phone service called "bag phones." The piece is a reminder of the digital divide, even as technology products morph at a warp speed. An excerpt: "Alexander Graham Bell's invention of 1876 never reached Mink, a onetime trappers' paradise in the Kisatchie National Forest in west-central Louisiana, although neighbors just down the road on Highways 117 and 118 were wired for telephones in the 1970's. The telephone also never reached the hundred families of Shaw and Black Hawk, hunting and camping communities across the state along the Mississippi River, some of the few and untabulated places around the country lacking telephone lines. Yes, the telephone is not everywhere. In fact, televisions are more common in American homes today," the article said. "But now the 19th century is catching up with Mink and other isolated areas. Pushed by the state's Public Service Commission, BellSouth, at what it says is enormous expense, is wiring Mink for telephone service scheduled to start by March. Shaw and Black Hawk, where the geography defies wiring, are to have cellular towers."
• The New York Times: In the Age of the Wireless Phone, a Louisiana Town Awaits the Real Thing (Registration required)

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