Ending 18 months of bad blood, Oracle Corp raised its takeover bid for bitter rival PeopleSoft Inc by 10 percent to seal a US$10.3 billion deal that will create the world's second largest maker of business applications software.
The agreement, announced on Monday, caps a rancorous Silicon Valley feud marked by churlish exchanges between the companies' management teams and colorful courtroom battles.
Redwood Shores-based Oracle brought an end to the hostilities by sweetening its all-cash offer to US$26.50 per share, up from a US$24 bid that PeopleSoft's board had rejected as inadequate. The final offer represents a 75 percent premium from PeopleSoft's market value before Oracle launched the takeover battle in June last year.
"A lot of people compared us to Don Quixote tilting at windmills, but finally we now have PeopleSoft," Oracle CEO Larry Ellison said during an interview Monday. "Clearly, it's a great feeling. It's not that I wanted to win just for the sake of winning. It's the fact that PeopleSoft is instrumental to our strategy."
The resolution pleased investors. PeopleSoft's shares surged US$2.47, or 10.3 percent, to US$26.42 during Monday's trading on the NASDAQ Stock Market, where Oracle's shares gained US$1.25, or 9.4 percent, to US$14.53.
By picking up 12,750 PeopleSoft customers and nearly US$3 billion in annual revenue, Oracle hopes to mount a more serious challenge to German software maker SAP's leadership in business applications software -- the computer coding that automates a wide range of administrative tasks.
After completing the takeover next month, Oracle expects the PeopleSoft acquisition to boost its earnings by about US$400 million, or US$0.08 per share, during the fiscal year ending in May 2006.
"This is a coup for Oracle," AMR Research analyst Jim Shepherd said. "While there were other acquisitions that interested them, none could do for them what this will do."
Oracle eventually hopes to buy other technology companies, but won't consider any other large acquisitions until PeopleSoft is fully digested, Ellison said.
The fate of PeopleSoft's roughly 12,000 employees remains unclear. Oracle at one point drew up plans to fire more than 6,000 PeopleSoft workers, but the company recently has indicated that the purge might not be as dramatic as management originally envisioned.
"It's still going to be bloody for PeopleSoft employees," predicted Garban Institutional Equities analyst Richard Williams.
Keeping PeopleSoft's employees happy won't be as important to Oracle as pleasing most of the customers that it will inherit, Shepherd said.
For the deal to make financial sense, Oracle needs to keep collecting a steady stream of revenue for maintaining and upgrading the software of PeopleSoft customers. Some PeopleSoft customers have expressed serious reservations about the deal, threatening to either defect to SAP or another company specializing in software support.
Oracle hopes to ease the customer concerns by continuing to develop new PeopleSoft products within a separate division of the merged company.
"We are going to make heavy investments to keep those customers happy," Ellison said.
PeopleSoft provided Oracle extra incentive by offering unusual guarantees as it tried to fend off the takeover. The guarantees could force Oracle to refund up to US$2.4 billion to PeopleSoft customers if product support diminishes. Oracle doesn't expect to trigger the refund clauses.