The Database Report for the first quarter of 2004 is heavily dominated by the Oracle Peoplesoft merger in waiting. But if that topic is not interesting enough for you, do not fret – there were
several interesting pieces of database news from the other vendors, too. So let’s dig in and see what happened in the database world early in 2004.
The Peoplesoft Versus Oracle Merry-Go-Round
For those unaware or oblivious to news in the IT sector, Oracle is attempting to buy enterprise applications vendor PeopleSoft for about $7.5 billion. The combination of Oracle and Peoplesoft would
result in the second largest applications vendor in the world, with only SAP (of Germany) being larger.
A lot happened since last we looked at Oracle’s attempted hostile takeover of application vendor Peoplesoft. So let’s step through this ongoing sage chronologically. Early in January, Oracle got
some bad news from Europe. The European commission put its investigation of the takeover attempt on hold in order to gather more information from Oracle. Even so, the European Union is expected to
complete its investigation of Oracle’s proposed acquisition of PeopleSoft by late April 2004.
Also in early January, PeopleSoft announced a $200 million share buyback plan to make Oracle’s acquisition even more difficult. This buyback, when coupled with the $350 million share buyback
closed in December, brings more shares under the control of Peoplesoft – shares that will not be tendered to Oracle without a fight.
Of course, Oracle was not inactive in early January by any stretch of the imagination. It arranged with several lenders to extend the 364-day $5.1bn credit originally procured so Oracle could
launch this takeover bid. The revolving line of credit is expected to be used to supply working capital for extra fees and expenses in the PeopleSoft bid.
In early February, Peoplesoft decided to move up the date of its annual shareholder meeting to March 25, 2004. This date is more than a month ahead of the date Peoplesoft held its 2003 meeting. The
ostensible goal of this meeting is to thwart the slate of directors Oracle has proposed for Peoplesoft’s board. Oracle nominated five candidates for PeopleSoft’s Board of Directors and has put
forth a stockholder proposal to increase the size of PeopleSoft’s board from eight members to nine. Oracle’s purpose here, of course, is to install folks on Peoplesoft’s board sympathetic to
Oracle’s takeover bid. Peoplesoft’s move was criticized by Oracle because the earlier date means that Peoplesoft’s shareholders will vote for board members before its annual earnings are known.
With the ball back in Oracle’s court, Larry and the gang decided to raise the stakes. In early February, Oracle raised the price of its offer for PeopleSoft to $26 per share, increasing the total
value of its hostile takeover bid to approximately $9.4 billion. Frankly, this action made me sit up and take notice and it heralded the first time I thought Oracle had a chance to succeed in its
bid for Peoplesoft. Finally, the Oracle offer was above the current trading price for Peoplesoft shares again (as still is at the time of this writing). The sweetened bid represented an 18.8%
premium over PeopleSoft’s closing price of $21.89 on February 3, 2004. Oracle CFO Jeff Henley characterized the increased bid as Oracle’s “final price.”
Predictably, just a few days later, Peoplesoft’s board of directors turned up its nose at Oracle’s improved offer, calling it inadequate. But with a reasonable offer finally on the table from
Oracle, this goat rodeo was about to get even more interesting. It will all come down to anti-trust issues because most Peoplesoft shareholders will tender their shares if Oracle continues to offer
a sufficient premium over the current selling price.
But the next day US Department of Justice (DOJ) lawyers recommended that DOJ block the deal due to it being anti-competitive. Of course, this was not the final DOJ ruling on the matter, which came
later, but the DOJ almost always sides with its lawyers. Undeterred, Larry Ellison continued to state that Oracle intends to acquire Peoplesoft.
What does it boil down to? Well, the decision hinges on the definition of the market that is being impacted. Peoplesoft wants the market to be defined narrowly as enterprise applications in which
the only vendors are itself, Oracle, and market-leader SAP. Oracle wants the market to be defined more broadly to include SMB application vendors such as Microsoft.
Oracle next move was to communicate directly to the Peoplesoft shareholders. Oracle criticized Peoplesoft’s handling of Oracle’s bid in a letter sent by Oracle directly to Peoplesoft’s
shareholders. The letter was critical of the poison pill Peoplesoft implemented, as well as taking a swipe at Peoplesoft’s board of directors for denying the “true owners of Peoplesoft” the
opportunity to sell their share to Oracle at a premium.
Peoplesoft then stuck to its plan to hold its annual shareholder meeting on March 25th by mailing out proxy materials late in February. Peoplesoft continues to claim that Oracle’s acquisition bid
“severely undervalues” the company.
In late February/early March, the DOJ filed a lawsuit to block Oracle’s acquisition of Peoplesoft. The lawsuit claims that an Oracle takeover of Peoplesoft would hinder competition in the $20
billion market for application software sold to large businesses. Oracle quickly announced its intent to fight the DOJ’s lawsuit.
So, the DOJ seems to have defined the market the way Peoplesoft wanted – and that makes sense to me. But SAP chimed in later in March that they were not opposed to an Oracle takeover of Peoplesoft.
Of course not, I thought, why would the number one player in a three player market object to the two smaller fish fighting with each other, causing confusion, and therefore, likely sending many
customers to SAP because it offers a more stable solution?
One final piece of news on this front occurred in the middle of March. A federal judge set a trial date of June 7, 2004 for the DOJ’s lawsuit; he also told Oracle that had to provide the DOJ with
information about customer discounts it provided that could serve as evidence in the lawsuit. And in a pre-trial hearing, Judge Vaughn Walker denied the DOJ’s request for a two-tiered system for
Oracle’s attorneys. The motion would have prevented Oracle’s lawyers from seeing trade secrets the government has collected as part of its case to block Oracle’s controversial $9.4 billion
So, this fight is far from over, but it is looking more and more like Oracle will be thwarted. Of course, things can change. I think a good tactic for Oracle would be to propose a post-acquisition
spin-off of the JD Edwards products that Peoplesoft acquired in 2003. Oracle didn’t want the JD Edwards software anyway and that would create a third player in the market if an Oracle acquisition
of Peoplesoft were allowed. Such an approach might help to persuade the DOJ to modify its course.
At any rate, if Oracle does not acquire Peoplesoft they have previously announced their position that consolidation is inevitable – so they probably will try to acquire something else. In fact, I
think it is likely that this whole mess may never come to trial. And if it does, it might not go on endlessly. It would make sense for Oracle to back off and set its sights on other acquisitions.
And there is no shortage of acquisition targets out there – so keep a watchful eye on Oracle if it does not buy Peoplesoft. Oracle might be interested in acquiring companies in the following
spaces: business intelligence, application integration, transaction management, systems management, and storage management.
A New Chairman for Oracle
In early January Oracle named CFO Jeff Henley to be chairman of its board of directors, replacing its co-founder Larry Ellison. Larry will retain his CEO position, and Henley will continue as CFO
until a replacement is found. At the same time, Safra Catz and Charles Phillips were promoted to be co-presidents of Oracle. These moves should give Oracle more stability because it had been
unclear who could step in to lead Oracle if Ellison had to step down from the helm.
Larry Gets Hitched
In December 2003, Larry Ellison married his longtime girlfriend, romance novelist Melanie Craft. Craft is the author of the romance novel, Man Trouble, whose protagonist is claimed by some
industry wags to somewhat resemble Mr. Ellison. Perhaps the nuptials help to explain why Larry stepped down as Oracle’s chairman a month later?
But let’s get back to database and market information before this column starts to sound like something out of the National Enquirer!
Crazy Larry’s Prices are Insane!
In early March Oracle revamped its pricing model to reach out to small and medium-sized businesses. Oracle announced a $1000 price cut for the Oracle 10g Standard Edition database, reducing the
price to $4,995. Additionally, the per server processor limit was increased from one to two.
Pricing relief is being provided for Oracle’s midrange Standard Edition 10g as well. Even though the pricing remains at $15,000 per processor, Oracle is bundling its Real Application Clusters
(RAC) software with the DBMS at no charge (with the maximum of 4 CPUs for the database and cluster). The Enterprise Edition pricing remains unchanged at $40,000 per processor.
Additionally, in early February Oracle indicated that is was considering adopting a per-employee subscription model, as well.
A Look at the Numbers
Oracle posted strong results in its fiscal third quarter, with a 12% increase in new software licenses over the same quarter in 2003. Profits were up as well, increasing by 11%. Database sales
comprised the bulk of new licenses and accounted for $700 million in revenue, while sales of Oracle applications were flat at $140 million. Overall, Oracle’s results came in a penny better than
IBM’s fourth quarter earnings were stellar as well, handily topping analyst expectations. IBM’s Q4 earnings came in at $2.7 billion, or $1.55 per share, on revenue of $25.9 billion. Those figures
were well ahead of the same period last year, when IBM posted a net profit of $1.0 billion, or 59 cents per share, on revenue of $23.7 billion.
IBM’s software business was strong at $4.3 billion, growing by 12%. IBM’s global services division tallied an 8% increase in revenue.
For the full year 2003, IBM’s net income was $7.6 billion, or $4.32 per share, on revenue of $89.1 billion. This compares to 2002’s net income of $3.6 billion, or $2.06 per share, on revenue of
$81.2 billion. IBM believes it gained share in all IT segments for the second straight year in 2003.
IBM Walks Like a Penguin … but Stings Like a Bee
IBM previewed enhancements made to DB2 for supporting Linux clusters. These features, to be offered in a new version of DB2 code-named Stinger, were announced at the Linux World conference in mid
January 2004. A new Linux-based DB2 partition adviser is being introduced for DBAs wanting to automate cluster management. IBM touted the improved scalability, reliability and integration
capabilities the partition advisor will bring to Linux clusters. The partition adviser enables DBAs to rapidly partition and optimize the performance of databases running over multiple machines, a
typically manual and laborious task. The adviser provides a setup wizard to help administrators scale out database configurations. It is an obvious parry against Oracle RAC.
Additionally, IBM said it would port DB2 to run in a Linux environment on its high-end pSeries Unix machines. Up until this announcement IBM only supported 64-bit Linux on Intel-based machines.
Support for the pSeries machines should help to boost the performance and workload capacity of DB2 on Linux.
And in early March IBM finally provided a general availability date for Version 8 of DB2 for z/OS. DB2 Universal Database for z/OS Version 8 for IBM’s eServer zSeries mainframes will be generally
available from IBM beginning March 26, 2004. To learn a little bit more about the features of this release check out The Database Report from April 2003 at http://www.tdan.com/dbreport_issue24.htm.
And up in Washington …
VARBusiness Magazine ranked Microsoft SQL Server 2000 as the number one data management platform. The 2003 VARBusiness Annual Report Card survey recognized Microsoft as the highest-rated solution
provider for data management software. Industry technology solution providers are polled to select these awards.
And finally, Microsoft further delayed Yukon, the next edition of SQL Server. It is now slated for shipment in the first half of 2005, instead of the second half of 2004. Microsoft held up Yukon to
conduct a third round of beta testing. Microsoft is wise to stress test Yukon on as many platforms and with as many users as possible to avoid security issues that are plaguing DBMS products on
Microsoft operating system platforms. (For example, DB2 for Windows was hit with a security advisory in mid-March by Next Generation Software co-founder David Litchfield… and we all remember the
Slammer worm, don’t we?)
I think this delay is a good thing. The DBMS vendors pump out new releases faster than customers can deploy them properly. Slowing down and working out all the bugs before shipping is a good idea.
On the other hand, announcing constantly slipping ship dates is frustrating, and by the time Yukon comes out the current SQL Server 2000 will be old by today’s software standards. So, I guess it
is a double-edged sword and Microsoft is kind of damned if they do and damned if they don’t. Still, in this case, “don’t” is preferable to “do.”
And so ends the first quarter of 2004. All of the major DBMS vendors were making news this past quarter and it looks like the remainder of the year will be just as interesting and turbulent as
ever. So be sure to check back with TDAN.com next quarter to hear all the latest news about the DBMS market place.