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PeopleSoft, IBM announce partnership agreement

"This year has sort of been like hearing beautiful music on a radio station with a lot of static."

Craig Conway,chief executive of PeopleSoft

PeopleSoft on Tuesday announced a broad partnership with IBM, in an attempt to show that it is moving forward aggressively despite the turmoil created by Oracle's US$7.7 hostile takeover bid.

PeopleSoft's chief executive, Craig Conway, told more than 11,000 corporate customers gathered for its annual user convention that the deal with IBM would help PeopleSoft customers adapt to changing technology. The deal, which has been in the works for several months, calls for a combined investment by the two companies of at least US$1 billion over the next five years.

Since Oracle began its takeover effort in June 2003, Conway has said that the move was causing some customers to consider not buying PeopleSoft products, a situation that the company estimates has cost it more than US$1 billion in lost revenue. The IBM deal seemed intended to let customers know that PeopleSoft was moving ahead in spite of all this.

The appearance was Conway's first in public since a federal judge in San Francisco ruled last Thursday against blocking Oracle's offer for PeopleSoft, the second-largest supplier of business automation software for corporations. The ruling removed a major obstacle to what could be the largest -- and perhaps the most acrimonious -- merger in software history.

The Justice Department, which sued Oracle more than a year ago in an effort to block the deal, has not yet announced whether it will appeal.

"This year has sort of been like hearing beautiful music on a radio station with a lot of static," Conway said, in an interview after the announcement on Tuesday.

Conway told customers that the last 15 months had been "a nightmare," but that PeopleSoft was determined to fight off Oracle.

The struggle, he said, "has stretched our resources and challenged our values, but we didn't give up and we're not going to give up."

The partnership with IBM, which the companies say they will conclude in the fourth quarter, will help PeopleSoft make it easier for customers trying to tie together disparate software systems. PeopleSoft will provide the applications programs that customers interact with, while IBM, will provide the underlying technology.

Customers will also be able to choose alternate technology from Microsoft, BEA or others in place of the IBM software.

Conway said the agreement grew out of a deal that was already in the works when PeopleSoft purchased the software maker J.D. Edwards in July last year.

Charles DiBona, an analyst with Sanford C. Bernstein & Co, said that the agreement was a fairly routine technology deal and that its significance would not be apparent until more details were available.

"People like road maps," DiBona said, "and that's what this is."

Customers who want to take a different direction will simply do so, he said.

Earlier on Tuesday, Oracle criticized PeopleSoft for a recent decision to increase severance pay for its staff, accusing it of reducing shareholder value. Conway defended the move, calling it "a natural reaction to the higher state of anxiety due to the court decision."

He said that the rise in severance pay actually increased the value of the company because it encouraged PeopleSoft employees to stay during a difficult time.

"We're protecting our key asset," Conway said, "which is very common during a takeover."
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