BusinessWeek Senior Writer
Steve Hamm met with Oracle
Chief Executive Larry Ellison at the outfit's New York City offices the morning
after the deal was completed, and just hours after it was announced. Here are
edited excerpts of their conversation:
Q: Why this breakthrough?
A: The upcoming litigation in Delaware was the catalyst [Oracle took
PeopleSoft to court in a bid to dislodge a poison-pill provision proffered by
PeopleSoft's board]. The experts said there was no chance the judge would pull
the pill. But those same experts [earlier had declared] there was no chance a
hostile takeover would work, and there was no chance we could beat the Justice
Dept. [Justice's efforts to block the merger were rejected earlier this year by
a federal judge.]
Conventional wisdom has been consistently wrong on this deal. [PeopleSoft]
shareholders voted -- over 60% of them -- to sell the company. The combination
of that and the upcoming trial put the board in an awkward position. There was a
lot of discomfort. They floated the number $26.50 to us through back channels.
We entered into a negotiation, this time with real information about their
business.
What was especially striking to us was that their maintenance business was
larger and more profitable than we had thought. We can do a highly accretive
deal, even at $26.50.... We think it's a new world. Hostile takeovers can work.
In fact, this one did.
Q: What does the deal do for Oracle?
A: It doubles the number of applications customers we have: It's twice as
many customers to sell to. We're [now] increasing our applications sales force
by 50%. We're now the No. 1 application company in the U.S. -- the largest
market. We're No. 1 in banking, health care, education, government. There are a
number of markets where we're ahead of SAP. We're a very strong competitor.
In addition, we can invest more in developing applications, putting more dollars
in making our products better and more competitive. That's necessary when
competing with a company the size of SAP. We have to have some markets where
we're the clear leader and most of the customers come to us. We have to have
enough size to have economies of scale in engineering and support, and I think
we're there.
Q: It also helps your database software [sales]?
A: Absolutely. We're the application company that gets paid twice. We sell
application, middleware, and database. Keep in mind, the majority of PeopleSoft
customers are already on the Oracle database. But still this gives us more
opportunity.
Q: And this helps you against IBM (IBM
) in the database competition and against Microsoft, right? It helps to block
Microsoft from the enterprise market, doesn't it?
A: We're a much bigger enterprise company than they are. The larger we get,
the better level of support we can provide, and the better economies of scale we
get. Bigger is better in software. We can increase our investment in
engineering, lower our prices.
As we get bigger, the more partners want to work with us. I think IBM Global
Services wants to work with us. They won't say "we only work with SAP." We have
a chance to improve our relationships with IBM Global Services, Accenture (ACN
), and EDS (EDS ). These
companies influence buying decisions.
Scale is crucial in this business. We see it in our database business, and in
Microsoft Windows and desktop applications. Those are the three most profitable
software products on Planet Earth. Why? People buy a lot of it.
Q: How do you see Microsoft emerging as a competitor?
A: They're going to come at us from the bottom up. They'll be very
aggressive, and they have a lot of endurance. The name of the game when you're
entering a software market is endurance. It takes a lot of time to get it right.
We're going after their Exchange business with our Collaboration Suite. It takes
several releases before you get the product right, and then you have to get your
early adopters up and running. It takes a long time to enter a market where
there's a strong provider.
We have the financial clout and the technical talent to stick it out. Microsoft
clearly does as well. They'll be around. They'll be successful in the
applications business.
Q: Does this deal reshape the enterprise technology business?
A: When No. 2 buys No. 4 it does reshape it. It kicks off this consolidation
phase in Silicon Valley. There are lots of sellers and not many buyers. We think
we're the primary consolidator in the enterprise software space.
Q: So there will be more deals?
A: Absolutely. There won't be more for at least a year. We have two key
constituencies we have to prove something to. We have to prove to the PeopleSoft
customers that they're better off now. We'll do it with a higher quality of
services and enhancements to PeopleSoft products. At the same time, we have our
own shareholders we have to satisfy. We have to execute well over the next 12
months. Maybe I'll come back to New York next Christmas.
Q: You're enhancing PeopleSoft and JDE products? You say you're going to over
support these products? That's a lot of investment.
A: Sure, it's a lot of investment. But it's in the right area. It's
improving products. We're not going to increase marketing, or general and
administrative expenses. Those numbers will be flat. We think the model works
extremely well.
