Everyone can breathe a sigh of relief now – the Oracle acquisition of Peoplesoft finally has been settled. Well, I suppose not everyone will be relieved. Those least likely to be cheering this
result include Peoplesoft employees (wondering what the future will hold), Peoplesoft customers using DB2 or SQL Server (wondering when they’ll have to convert to an Oracle database), and maybe
BEA and Seibel Systems (perhaps wondering if they are next in Oracle’s sights).
Of course, the on-going Peoplesoft saga is not the only news of the past quarter, even if it was the most interesting. We’ll take a look at other news including some IBM benchmarks, news from
Oracle World, and more. But let’s start by covering Oracle’s Peoplesoft acquisition.
ORCL vs. PSFT: The end is nigh
Well, it all started out like this fight would continue forever, but alas, that was not to be. Late in September Peoplesoft was acting like that 500 pound Oracle gorilla was not sitting on its
head. And IBM was playing along, too. Peoplesoft and IBM announced a broad partnership between their respective companies that plans a combined investment by the two companies of at least $1
billion over the next five years. It remains to be seen if this partnership will proceed now that Oracle will be finalizing its purchase of Peoplesoft early next year. My guess is that it will not,
but who know?
Almost immediately after this announcement, Oracle announced that it had extended its $7.7 billion cash offer for Peoplesoft and that Peoplesoft shareholders had until October 8th to tender their
shares. The offer, at $21 per share, was set to expire on September 24th. And just to keep everything in perspective, remember that at this point Oracle has won its case with the US Department of
Justice, but was facing a possible appeal (that never happened), a possible anti-competition case in the European Union and Peoplesoft’s anti-takeover poison pill.
During the past quarter, Oracle’s court filings became public and some of them were quite entertaining. In one filing Oracle claimed that Peoplesoft CEO Craig Conway pursued all sorts of tactics
to fight the takeover including keeping the rest of Peoplesoft uninformed and firing law firms that dealt with Peoplesoft’s board without consulting him first. Oracle also challenged whether
certain members of PeopleSoft’s board are as independent as PeopleSoft claims. Of course, Peoplesoft disputed these claims. Then it fired Craig Conway.
Early in October Craig Conway was shown the door and David Duffield, the company’s founder was named as his replacement. The Peoplesoft board of directors indicated that Conway was removed because
of a “loss of confidence in Mr. Conway’s ability to continue to lead the company.” Conway had been Peoplesoft’s CEO since September 1999. Duffield will continue to serve as Peoplesoft’s
Chairman of Board. Kevin Parker and Phil Wilmington have been named as co-presidents, and Aneel Bhusri as vice chairman of the board.
The next bit of news in this saga came from Peoplesoft in the form of its quarterly revenue announcement. In early October the company indicated that it expected to report between $680 million and
$695 million in revenues for the quarter ended September 30th. Peoplesoft also indicated that it expects earnings of 3 cents per share to 4 cents per share, in line with analyst projections.
Next we got some details about internal Oracle e-mails regarding the Peoplesoft acquisition. A few days before Oracle publicly announced its hostile acquisition (June 3, 2003), Mark Jarvis
(Oracle’s Chief Marketing Officer at the time) suggested that Oracle “use this news in order to create FUD with prospects and customers alike.” So maybe Peoplesoft’s assertions that Oracle was
just trying to hurt Peoplesoft held some water. Of course, these documents do not prove Oracle’s intent. And Jarvis is no longer employed by Oracle having left for another job. The internal
documents were excerpted in Oracle’s August 6th response to interrogatories from Peoplesoft. An interrogatory is a standard way to obtain information from an opposing party in a lawsuit.
As October 8th came and went, Oracle yet again decided to extend its deadline to acquire Peoplesoft. This time, the deadline was extended by another two weeks to October 22nd. Then the news stories
about the price of the offering started to come out. Most of these suggested that Oracle might sweeten its bid to lure the Peoplesoft board to reconsider. But Larry Ellison does things his own way.
During the trial contesting Peoplesoft’s anti-takeover defenses Ellison said that Oracle has had “more discussions about lowering price than raising the price.”
Indeed, Larry is a tough negotiator. After Ellison’s testimony was reported, Peoplesoft’s shares declined by more than $1.25. Of course, the stock later rebounded when folks realized Ellison’s
remarks were likely just a negotiation tactic.
The next move was Peoplesoft’s. David Duffield wrote a memo to Peoplesoft employees in which he reiterated Peoplesoft’s long-standing position that it is not for sale. Duffield said that he is
“not here to sell.” Of course, Duffield used the memo to rally the troops, too. In it he makes clear that Peoplesoft can withstand an Oracle acquisition only if it continues to perform well. It
is clear, at least in retrospect, that Duffield sent the memo to calm Peoplesoft employees during a difficult time, and that his actual position on the acquisition was not so clear.
Late in October the European commission announced that it was ruling in favor of Oracle, and that the acquisition could proceed without any attempts to stop it from the perspective of the European
Union. This was not a surprise. All along it seemed likely that the EU would rule the same way that the US Department of Justice ruled.
Then things heated up. In early November Oracle upped its bid for Peoplesoft from $21 per share to $24 per share. The revised offer brought the total bid to about $9 billion. Accompanying that
offer though was a stern warning from Oracle that this was its “best and final offer.” I wonder if anyone at Oracle owns a dictionary.
Of course, Oracle had to sweeten its offer. And, of course, at $24 a share Peoplesoft had to reject it – which it did. Why would Peoplesoft suddenly embrace $24 per share when it had previously
rejected $26 per share? In addition to revising its bid, Oracle indicated that it would develop a next generation of Peoplesoft products (Peoplesoft 9) and maintain an engineering organization in
Pleasanton, California at Peoplesoft’s campus. Of course, the new deal maintained the requirement that Peoplesoft drop its poison pill. Furthermore, Oracle put things into the hands of
Peoplesoft’s shareholders. The amended offer was set to expire at midnight on November 19th. Furthermore, Oracle said that it would withdraw its offer and walk away if a majority of Peoplesoft’s
shares have not been tendered into the offer by that date. Hmmm… things were indeed getting interesting.
Several Peoplesoft directors, including new CEO David Duffield, said during the Delaware trial that if Oracle dropped some of its conditions and showed commitment to Peoplesoft products, it would
entertain the offer seriously. Well, that is what Oracle did. And the Peoplesoft board, predictably, rejected the offer again. As we will soon see, it was all about the price.
Prior to the November 19th deadline, pundits swirled trying to predict whether enough Peoplesoft shareholders would tender their shares. It was reported that investment firm Private Capital
Management LP would not tender its shares to Oracle. The firm controlled more than 35 million shares of Peoplesoft representing more than 9 percent of Peoplesoft’s outstanding shares. That looked
like bad news for Oracle. But then Oracle announced that the Capital Guardian Trust Co. investment firm, which controlled more than 21 million PSFT shares (almost 6 percent) would be tendering its
shares. The battle raged on.
Then, early Saturday morning on October 20th Oracle announced that more than 60 percent of Peoplesoft investors had tendered their shares to Oracle. So, the true owners of Peoplesoft had spoken and
they wanted to sell; Oracle would not withdraw. Of course, Peoplesoft officials indicated that they did not view the outcome as binding and they would continue to resist the existing offer. But the
hand-writing was on the wall.
Now remember, the poison pill lawsuit was still ongoing. And later that week the Delaware judge presiding over the case said he would need to hear additional testimony to reach a decision and he
would be extending the case.
But the point was moot. On December 13th Peoplesoft agreed to the acquisition after Oracle increased the price on its “best and final” offer. Oracle agreed to a $26.50 per share price – higher
than any of its previous offers. This makes the deal worth about $10.3 billion. Remember the original offer was for $16 per share.
And another thing changed. Oracle now seems to be more interested in maintaining Peoplesoft applications. Oracle CEO Larry Ellison clearly outlined plans for developing future versions of the
Peoplesoft and JD Edwards applications. This is a nice turn of events for Peoplesoft’s customers.
Of course, all was not peaches and cream. Ellison also said that there will be job losses as a result of the merger. However, he did temper his remarks by stating that there would be losses from
both the Peoplesoft and Oracle job force.
So why did Oracle sweeten its best and final offering? Let’s let Larry explain:
“We were making a lot of assumptions about their business. We didn’t have actual information about their business until we were in direct negotiation with PeopleSoft. As we took a look at
their maintenance frame, and how much they were spending and what their revenue actually was, it turns out that that business was even more profitable than we thought.”
Or maybe he just realized he would never be successful until he bested his previous best offer. Now it seems like this whole mess will be finalized in January 2005. Let’s hope so. But also, let’s
take a moment to ruminate on what this all means.
First of all, the deal makes Oracle the solid number 2 player in the enterprise applications market. SAP is the undisputed market leader, but Oracle will be nipping at its heels… at least until
Microsoft decides to enter the market.
The other outstanding question is this: “How long will Oracle continue to support non-Oracle databases in the Peoplesoft and JD Edwards applications?” I would guess that it would have to for at
least some period of time, but their long term plan almost certainly will be to phase out support for any database that isn’t Oracle. We’ll keep out eye on these developments in future Database
Report columns.
The Next Company to be Acquired by Oracle Will be?
Oracle is almost certainly not done with its acquisitive ways. In mid-November the company hired a law firm to give Oracle advice on other potential acquisitions. The firm, Latham & Watkins
LLP, previously helped Oracle with the legal issues surrounding its Peoplesoft takeover.
Larry Ellison indicated during some of those legal proceedings that Oracle is considering buying three or four other public companies. Much speculation has centered on BEA Systems as one of those
potential targets. Others include Sybase, Business Objects, and Lawson Software.
Look for Oracle to continue to acquire enterprise software companies to help transition it from being known as “just a database company.”
News from Oracle World in San Francisco
Oracle hosted its annual Oracle World conference in San Francisco in early December. The focus of the event was clearly on Oracle’s grid computing strategy. But data hubs were also a notable
topic. For those of you greybeards out there, I am not talking about the old IBM DataHub product that never worked and was eventually withdrawn. It is a (somewhat) new concept being driven by
Oracle.
Larry Ellison called the data hub the “single most important application” needed to unite islands of information into a single global instance. In other words, the data hub connects together
disparate databases into a cohesive unit. Basically, a data hub consolidates data from multiple sources into a central location for access. Sounds kind of like a data warehouse to me, though.
Oracle is planning to launch specialized data hubs based on its e-Business Suite. Data hubs for manufacturers and supply chain companies, for financial organizations and for government are in the
works – but there were no dates given for general availability.
The conference was highly successful this year attracting 25,000 attendees (according to Oracle). Among the keynote speakers at this year’s event were Dell chairman Michael Dell, Hewlett-Packard
CEO Carly Fiorina, and Sun Microsystems CEO Scott McNealy. Of course, Larry Ellison also delivered his annual keynote address to the faithful.
Oracle’s Second Quarter Financial Results
Oracle’s second quarter financial results were quite impressive. So impressive, in fact, that Oracle pushed the announcement of their earnings up three days to get the good news out early. But the
news of the conclusion of the Peoplesoft acquisition over-shadowed the good financial news.
Oracle’s fiscal second quarter spans the three-month period that ended on November 30, 2004. During that quarter earnings were $815 million, or 16 cents per share came, which constitutes 35%
growth. Total revenues for the quarter were $2.76 billion while operational expenses came in at $1.6 billion. During the same quarter last year, the company earned $617 million, or 12 cents a
share, on sales of $2.22 billion. Analysts had expected earnings of 14 cents a share and sales of $2.6 billion.
New software license sales flashed an additional sign of good financial health. Many analysts view new license sales as more important than on-going maintenance revenue. New license sales were up
14 percent to $971 million.
After the announcements (earnings and acquisition finalization) Oracle shares rose 10 percent to $14.63 – an 11-month high. PeopleSoft shares added 10 percent to $26.42.
And Oracle executives were rightfully proud of their execution. “Oracle is at its highest ever levels of profitability,” said Oracle CFO Harry L. You. “For the trailing four quarters operating
income reached a record $4.2 billion while cash flow was at $3.4 billion. During that same twelve-month period we met our publicly stated goal of 40 percent operating margins for the very first
time.”
Oracle Targets MySQL Users
Peoplesoft was not the only thing on Oracle’s mind this quarter. It seems that Oracle is looking to current open source DBMS users as a possible way to grow their market share. In an interview
published by InfoWorld, Oracle’s Vice President of technology marketing, Robert Shimp, indicated that MySQL customers who reach the limits of that platform are beginning to migrate to Oracle to
deliver more robust data management capabilities.
This makes some sense. MySQL applications are typically smaller with lower performance and availability requirements than enterprise scale applications. As those applications begin to be accepted
and used more heavily, the data access and availability needs of the applications will tend to grow as well.
However, Oracle may have a more difficult time converting MySQL users than it anticipates. The primary challenge will be monetary. Most MySQL users choose MySQL because of its low cost – and Oracle
is not known for being the low-cost DBMS provider. For commercial use, the MySQL DBMS costs $595 per server; Oracle10g Standard Edition pricing starts at $4,995 per processor.
Additionally, MySQL is evolving into a more capable DBMS. Indeed, the company plans to add triggers, stored procedures, and views to its product next year. As MySQL gets more bells and whistles it
will become more viable for enterprise usage. But, performance, scalability, and availability are more important for most enterprise deployments, and the Big Three (Oracle, DB2, and SQL Server) are
more robust than their open source competition.
Microsoft Augments SQL Server Reporting Capabilities
With all of the Oracle news this quarter you might have missed Microsoft’s announcements augmenting user’s abilities to create reports. The announcement was made in Orlando near the beginning of
the quarter at the annual SQL Server conference known as PASS (the Professional Association for SQL Server).
The first announcement brings better reporting capabilities to two of Microsoft’s business solutions. Basically, Microsoft is providing reporting templates for Exchange Server and Business
Solutions CRM customers. Microsoft SQL Server Report Packs can be downloaded free of charge for these solutions.
These report templates can help to simplify access to information via the creation of canned reports. For example, users of Microsoft’s CRM application can very simply create a list of current
customers in the pipeline along with details about those customers. The templates can be modified by the end user thereby allowing the reports to be customized as needed.
Microsoft indicates that additional Report Packs for other applications will be forthcoming from the company.
Microsoft made an additional announcement this quarter regarding reporting. The company indicated that an ad hoc query tool for building reports, based on technology recently acquired from
ActiveViews, will be included in SQL Server 2005 Beta 3. Microsoft calls the feature Reporting Services Report Builder and its enables users to build reports from a semantic business layer whose
purpose is to hide the complexity of the underlying database schema.
These announcements position Microsoft as competing directly against reporting and business intelligence vendors such as Cognos and Business Objects. If reporting capabilities are built into the
DBMS or application software, customers may not need to purchase the additional reporting software built by these companies.
SQL Server 2005 Slipping
In late October Computerworld reported that Microsoft confirmed that the shipment date for SQL Server 2005 could slip beyond the first half of 2005. Microsoft had earlier committed to the first
half of the year timeframe.
This marks the third delay for a new version of SQL Server and some of its users are getting impatient. Five years is a long time to wait for a new version of a DBMS product – especially when most
companies schedule new versions every 18 to 24 months.
Of course, Microsoft is releasing beta versions of SQL Server 2005 to its customers and will continue to release new builds of the beta between now and the eventual general availability ship date.
Ingres or Egress?
In November, Computer Associates announced a campaign to promote Ingres to financial firms. The goal of the project is to convert banks and investment firms that use Sybase over to open source
Ingres. Sybase is still widely used in the financial sector. Perhaps CA can capitalize on the open source bandwagon with Ingres, but for the most part, Ingres is deader (more dead?) than Sybase. If
anyone was going to go to the effort of converting a large-scale enterprise database off of Sybase, I cannot fathom why they would convert to Ingres instead of to DB2, Oracle, or SQL Server.
Continuing along this path of confusion Computer Associates brought Ingres for Linux and Windows over to its open source license. Don’t get me wrong, this is a good thing. Ingres is a fine DBMS to
use for small-scale projects when you need to implement something using open source. But it seems like CA believes that this move will help Ingres compete against Oracle and SQL Server. And that is
highly unlikely.
IBM Sets New Speed Record…
And there was some database-related news from IBM this quarter, too. In late November IBM announced a record-setting TPC-C benchmark for DB2 V8.2 running on a 64-way Power5 1.9GHz IBM eServer p595.
The TPC-C result of 3,210,540 tpmC at a price/performance of $5.19/tpmC shows 2.7x better performance than Oracle RAC. Although benchmark results are made to be broken, this one is actually quite
interesting and should not be ignored. This new result for DB2 delivers a winning margin that is wider than the current top results of Oracle and Microsoft combined.
The benchmark simulated 2.56 million database users and 7.7 billion customers, with more than 100 billion rows of data requiring more than 240 TB of disk storage. If you keep in mind that the
current approximate world population is 6.5 billion people, this benchmark should put your mind to rest that DB2 is capable of managing your business. IBM touts that at the level of performance
delivered by DB2 in this benchmark, this system would support a new purchase from every person on the planet every 4 days.
…And It’s Secure to Boot!
While speed is important, the data better be secure from unauthorized users while it is speeding from the database to the end users. And in early October IBM announced that DB2 attained a critical
security certification.
DB2 V8.2 attained a security certification of level 4 (EAL4) from the International Common Criteria for Information Technology Security Evaluation. The Common Criteria Certification is required by
the United States Government before any IT products can be considered for purchase by government offices, departments and other federally funded organizations. In addition, Common Criteria is an
internationally recognized security evaluation required by numerous central governments worldwide for any of their departments interested in procuring commercially available products.
So, it has been a good quarter for IBM and DB2 users. Speed and security – what more can a DBA ask for in a DBMS?
IBM’s Third Quarter Financial Results
Earlier in this column we examined Oracle’s most recent financial results, so it is only fair that we take a look at IBM’s most recent earnings announced in the middle of October 2004.
IBM reported total revenues for its fiscal third quarter of $23.43 billion, which was above the consensus estimate of $23.37 billion. Earnings per share came in at $1.17, which was also above the
consensus estimate of $1.14. IBM indicated that its overall 9% growth in revenue was driven by growth across all geographies – an indication of a sound international business.
IBM’s zSeries revenue grew 12% year over year. For those of you who are not mainframe-savvy the zSeries is IBM’s mainframe line of computers. Software sales were up 5% year over year, as well as
up 5% over the previous quarter. Data management software grew 11% year over year with DB2 growing 15% year over year. IBM also upped its forecast for the full year indicating that analysts should
add 3 cents per share (representing the amount IBM was over for the quarter).
All in all, it was a very good quarter for IBM and DB2, too.
Summary
And so ends another year. It is unlikely that 2005 will bring with it anything as juicy as the two-year story of Oracle acquiring Peoplesoft. But who knows? If you want to know be sure to visit
TDAN.com each quarter to read The Database Report.
