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Give up, Larry!
Oracle should abandon its PeopleSoft bid and look for other deals. Here's what it could buy.
November 13, 2003: 1:17 PM EST
By Paul R. La Monica, CNN/Money Senior Writer

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NEW YORK (CNN/Money) - Hey Larry Ellison, don't you think it's time to throw in the towel on this PeopleSoft thing? After all, there are a lot of forces working against you.

PeopleSoft has been offering customers big refunds in the event the takeover bid succeeds -- a program you're fighting in court, pointing out in a filing this week just how much the program could end up costing you.

But even if you succeed in getting a court to force an end to the refund program, the Department of Justice still might block the deal on antitrust grounds.

And have you noticed what shares of Oracle (ORCL: Research, Estimates) have done since you first launched the hostile bid in early June? The stock has fallen more than 5 percent.

 
Oracle's stock has taken a tumble since announcing its bid for PeopleSoft...

During the same time frame, PeopleSoft's stock has surged 43 percent. And shares of SAP (SAP: Research, Estimates), the top company in the enterprise software business, have gained 32 percent. In fact, the whole Nasdaq is up 20 percent, a rally you've missed.

Your company's fiscal first-quarter sales report in September wasn't too hot either. Making matters worse, some analysts said the PeopleSoft soap opera was creating a distraction for your salespeople.

The writing is on the wall -- this deal is done.

Smaller takeover targets available

Of course, this doesn't mean you should stop looking for other takeover targets. Wall Street certainly wants you to expand beyond the stodgy database software business and gain a bigger stronghold in the more lucrative applications business, things like software that helps manage human resources and customer relationship functions.

...but most techs have continued to head higher.  
...but most techs have continued to head higher.

And you do have $7.4 billion in cash and short-term investments. Instead of blowing $7.3 billion on PeopleSoft, there are plenty of smaller targets. But for Pete's sake, try using some tact!

Hopefully you've learned the hard way that telling Wall Street you want to buy a company just so you can discontinue its software and fire most of the employees will not work. Even though '80s kitsch is cool again, corporate raids are not back in vogue.

So what companies might you want to go after? Richard Williams, strategist with Summit Analytic Partners, thinks that Oracle should bulk up its supply-chain management software capabilities.

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Williams said Manugistics (MANU: Research, Estimates) or I2 Technologies (ITWO: Research, Estimates) could make sense. And guess what? Both companies have a market value of less than $1 billion.

Another area that could be an intriguing growth opportunity for Oracle is software for the retail industry, said Cameron Steele, an analyst with RBC Capital Markets. He thinks Retek (RETK: Research, Estimates) would be a good fit for Oracle, and its market value is also below a billion.

Steele said that application management companies, which develop software and tools that monitor the performance of other software in order to minimize outages and downtime, would also make for logical takeover targets. Quest Software (QSFT: Research, Estimates) is one company that Oracle could consider, Steele said. It's a bit pricier though, with a market cap of $1.4 billion.

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By Paul R. La Monica

So there you go, Larry. Four potential acquisition candidates that could help add to Oracle's sales and earnings, and all of them would come pretty cheap, relatively speaking.

But if you are still hell-bent on winning PeopleSoft, here are some more words of advice: You'll probably need to boost that $19.50-a-share offer a tad since PeopleSoft's (PSFT: Research, Estimates) stock is trading at about $21.50.

Remember, PeopleSoft's stock has gone up during the past few months...unlike yours.

Steele owns shares of Oracle but RBC Capital Markets has no investment banking relationships with Oracle or other companies mentioned. Williams does not own shares of the companies mentioned, and Summit Analytic Partners does not perform investment banking.


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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.