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Smooth sailing ahead for Oracle?
Larry Ellison is still going after PeopleSoft but analysts think Oracle would be fine without it.
January 28, 2004: 12:20 PM EST
By Paul R. La Monica, CNN/Money senior writer

NEW YORK (CNN/Money) - At least one merger seems to be working out for Larry Ellison. The enigmatic Oracle CEO recently married romance novelist Melanie Craft.

But software rival PeopleSoft, which has been another subject of Ellison's advances for the past few months, appears intent on staying single.

The database software giant launched a hostile bid for PeopleSoft in June and PeopleSoft has continued to resist Oracle's efforts. Analysts think it's time for Oracle (ORCL: Research, Estimates) to move on since there are plenty of hurdles.

 
Oracle's stock finally took off in December after a strong earnings report.

The Department of Justice and the European Union have to approve the bid. Both are reviewing it for possible antitrust implications. Even if they green light a deal, Oracle still faces the formidable challenge of convincing PeopleSoft (PSFT: Research, Estimates) shareholders to vote for a slate of candidates that Oracle intends to nominate for PeopleSoft's board.

Considering that Oracle's bid remains at $19.50 a share and PeopleSoft's stock closed on Tuesday at about $23, it's going to be a tough sell.

"Why would investors vote in favor of Oracle's directors when Oracle's bid is three and a half dollars below the current share price?" said Tad Piper, an analyst with Piper Jaffray & Co.

Does Oracle even need PeopleSoft?

Oracle is holding a meeting for analysts Wednesday at its AppsWorld conference to discuss its applications software business. The company is expected to once again reaffirm its commitment to the PeopleSoft bid.

After all, the reason Oracle sought to buy PeopleSoft in the first place was to boost its presence in applications software, a segment with more growth potential than Oracle's maturing database business.

But Eric Upin, an analyst with Wells Fargo Securities, thinks Oracle proved its point and can afford to walk away now.

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Before Oracle announced it bid for PeopleSoft, analysts were concerned about how committed Oracle was to building its applications software business, which includes software that helps large companies manage supply chains, human resources, customer relationship services and other everyday business functions. That is no longer the case.

"Oracle still has a long way to go but it is putting a real solid effort toward being more of a force in applications," said Upin.

Ironically enough, it appears that the PeopleSoft saga was the kick in the pants needed to energize Oracle's sales force, said Pacific Growth Equities analyst Jason Brueschke.

Oracle posted disappointing fiscal first quarter sales in September, the first quarter after it announced the bid for PeopleSoft. At the time, analysts said the takeover saga was having a disruptive effect on sales.

Since then, Oracle has turned things around. Application software license sales in its fiscal second quarter, which ended in November, increased 27 percent from a year earlier. And Brueschke said it looks like December was a very strong month for Oracle, which bodes well for third-quarter results.

"When Oracle first announced the takeover, success was more important because the applications business wasn't doing well," Brueschke said. "Now it's doing well enough that I'm significantly less concerned about Oracle not being able to take over PeopleSoft."

As a result, Oracle's stock has finally emerged from the six-month long funk it was in after announcing the PeopleSoft bid. Since it reported its second quarter results in mid-December, shares have shot up nearly 12 percent.

Other fish in the sea

Of course, it helps that the overall economy seems to be improving. Oracle competitors SAP and Siebel Systems both reported relatively strong fourth quarter results last week.

PeopleSoft is expected to do the same when it reports its latest numbers on Thursday.

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And another solid quarter from PeopleSoft will make it even tougher for Oracle to convince PeopleSoft shareholders that it should agree to a merger. With this in mind, Oracle probably should start looking at other companies to buy, analysts said.

"Oracle has not held it a secret that it intends to be acquisitive going forward," said Piper.

As for Ellison, speculation has continued to swirl about his future involvement with Oracle. He recently gave up his chairman position to long-time Oracle CFO Jeff Henley.

Ellison has other varied interests, such as yachting. He helmed a boat that competed for the America's Cup last year and is expected to do so again in 2007.

For the past few years, Wall Street has expressed some concerns about Oracle's succession plan since many high profile executives left the company.

Ellison is kind of like the Bill Parcells of the software industry -- his assistants tend to get top jobs elsewhere. Several Oracle executives have become CEOs of other software companies, including Siebel Systems, Veritas Software and Salesforce.com, which is looking to go public this year.

The recent promotions of Oracle executives Charles Phillips, a former Morgan Stanley software analyst, and Oracle veteran Safra Catz to the roles of co-president, may allay some fears about life after Ellison. But one analyst said Wall Street doesn't need to waste time trying to guess how much longer he'll stick around.

Said Brendan Barnicle, an analyst with Pacific Crest Securities: "Larry will go out of there in a pine box."

None of the analysts quoted in this piece own shares of companies mentioned and their firms have no investment banking relationships with the companies.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.