The technology sector burst into life Friday when Oracle launched a hostile US$5.1 billion takeover bid for rival PeopleSoft.
Analysts said the offer could signify the beginning of a wave of consolidation in the industry as technology companies look for ways to achieve growth against a backdrop of stagnant corporate spending.
Shares in other software companies rose sharply on both sides of the Atlantic as investors bet on the next takeover target.
The promise of renewed takeover activity also buoyed the broader markets. in London the FTSE 100 index of leading shares closed 46 points higher, or 1 percent, at 4,150.8. In mid-day trade on Wall Street the Dow Jones Industrial Average was 74 points higher at 9,115.
In London, accounting software firm Sage, which has been rumored as a possible morsel for Microsoft, was 8 percent higher, financial software company Misys rose 10 percent and Anglo-Dutch computer services group LogicaCMG was up 12 percent.
Oracle said it would formally approach PeopleSoft shareholders with its offer of US$16 a share next week. The bid was 6 percent higher than the price of PeopleSoft shares at the close of business on Thursday.
The offer comes just four days after PeopleSoft agreed a deal to buy another software firm, JD Edwards, for US$1.7 billion, in a deal that would threaten Oracle's market share.
Larry Ellison, Oracle's chairman, said he was "very interested" in JD Edwards and would review the deal if the bid was successful.
Ellison said Oracle had no plans to raise its offer. "That's a fair bid," he said.
"We want to make sure the shareholders have an alternative to the very risky strategy proposed by PeopleSoft management." But investors were guessing otherwise. PeopleSoft shares climbed to $18.52 in early trade yesterday in anticipation that Oracle would be forced to go higher.
Ellison said the Oracle proposal would create "a very formidable player in the market." The deal would add US$2 billion to Oracle's annual US$10 billion revenues.
Oracle is the No. 2 software company in the world and the acquisition of PeopleSoft would strengthen its position in the market for business software programs.
Oracle is better known for database software, which accounts for about 80 percent of its revenues. In business management solutions, Oracle is second in the market behind German software producer SAP.
PeopleSoft is third.
Ellison said PeopleSoft chief executive Craig Conway had approached him a year ago with the idea of combining business applications divisions but they were unable to agree a structure.
Under those earlier proposals the two would have created a separate business housing the enterprise software, used by corporations to run everything from personnel departments to managing supplies.
Conway was once a top executive at Oracle and relations between the two chiefs are said to be strained. PeopleSoft was yesterday preparing its response.
Ellison said the PeopleSoft brand would eventually be phased out and reducing the company's 8,000 strong workforce would cut costs.
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