SAN FRANCISCO (CNN/Money) -
It's not often that the phrases "enterprise applications" and "high drama" appear in the same sentence, but as a result of Oracle's hostile takeover bid for PeopleSoft, they're now wedded pretty tightly. And don't look for the accusations and fluctuations of this fast-moving story to subside anytime soon.
Oracle (ORCL: Research, Estimates) investors -- buoyed by a strong quarter and a sense that the takeover bid is a no-lose situation for Larry Ellison & Co., as Jim Mendelson of Soundview recently argued -- have pushed the company's stock to nearly a 52-week high.
On the other hand, PeopleSoft (PSFT: Research, Estimates) investors are rightfully concerned about nearly every aspect of the deal, and that firm's stock has fallen back from the run-up it experienced after PeopleSoft's J.D. Edwards (JDEC: Research, Estimates) acquisition announcement.
PeopleSoft investors should brace themselves for even more bad news. When Ellison announced his bid for the enterprise software firm, which is based in Pleasanton, Calif., most observers reasoned that he was trying to scuttle the proposed merger between PeopleSoft and J.D. Edwards.
Ellison's motivation there is understandable: A combined PeopleSoft and J.D. Edwards would command more market share than Oracle. But I think there's another, more ruthless reason for the timing of Ellison's bid: It comes during the final three weeks of PeopleSoft's second quarter, which closes on June 30.
Why is that timing so important? Because in the world of enterprise software, most sales take place during the last month of a quarter. And any company considering signing a multimillion-dollar contract with PeopleSoft is now confronting the possibility that the software package it's buying will be phased out if Oracle takes over.
A recent advisory from Gartner suggests, "If you're considering a purchase of J.D. Edwards or PeopleSoft products, don't sign a deal until it becomes clear whether Oracle's plans to acquire PeopleSoft are serious."
Based on comments Ellison made during the earnings conference call on Thursday, it seems his company is serious about its $5.1 billion cash offer, despite PeopleSoft CEO Craig Conway's vitriolic opposition and the lawsuit filed by J.D. Edwards.
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So will companies in negotiations with PeopleSoft hold off on signing contracts, and if so, for how long? Will we see a drop in the number of new licenses or will sales simply be pushed to a later quarter?
That last is a crucial question, one that it's too early to answer definitively. But even a revenue delay could prove disastrous for PeopleSoft, and license revenue (money made from new sales) likely will decline in its second quarter, driving overall revenue down as well.
"It's safe to say that this is going to affect PeopleSoft's quarter in a negative way," says Betsy Burton, a Gartner analyst.
As a result, I wouldn't be surprised if PeopleSoft delayed reporting its second quarter. It reported its first-quarter earnings three weeks after the quarter closed, but I think it'll push the latest quarter's report back further.
A poor showing would depress its stock price more (PSFT is already down 20 percent for the year), making Oracle's current offering of $16 a share potentially more attractive to shareholders. PeopleSoft didn't respond to repeated requests for comment.
The Oracle bid comes at a critical time for PeopleSoft. Its software license revenue (money from new sales) declined precipitously last quarter from $143 million to $80.8 million -- nearly a 40 percent drop from the previous quarter.
Even though the division accounts for only 18 percent of total revenue, it is of paramount importance because the new accounts are what give PeopleSoft its longer-term -- and more lucrative -- maintenance and services revenue.
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