Conway to Ellison: It's over

Outside of Arnold Schwarzenegger's unexpected bid to become California's next governor, Oracle's similarly unexpected bid for rival PeopleSoft has provided Silicon Valley some of the most riveting entertainment of the summer.

But for PeopleSoft CEO Craig Conway, fending off the hostile takeover launched by his former employer has provided him with the professional challenge of a lifetime.

Only days after PeopleSoft announced an agreement to acquire J.D. Edwards this past June, Oracle announced its own surprise tender offer for PeopleSoft. In the scramble that followed, lawyers and publicists for both sides fanned out to win support from customers, Wall Street and regulatory authorities.

Oracle's tender offer is set to expire Sept. 19, and Ellison has vowed to fight this out--even if it takes another year. In the meantime, PeopleSoft, reaping the benefit of an accelerated merger timetable, expects to complete its acquisition of J.D. Edwards by the end of this week.

The completion of the merger would establish PeopleSoft as the No. 2 company in the multibillion-dollar market for business-management software behind German rival SAP. Oracle had commanded that spot for years.

For 48-year-old Conway, who worked for Ellison until 1992, the close of this summertime saga is a particular source of satisfaction. Appointed PeopleSoft CEO in 1999, he is widely credited with leading a revival of this one-time highflier. But orchestrating a flawless $1.8 billion merger with J.D. Edwards may be regarded as an even bigger feather in Conway's cap--that is, if he can pull it off.

Even without Ellison breathing down his neck, Conway still faces a panoply of complicated staff integration and product marketing issues. He also has to keep investors and customers happy while sorting through the issues that are bound to crop up in a merger of this scale. CNET News.com spoke with Conway to get a status report about the battle with Oracle and his plans for the future.

Q: Clearly, you don't welcome Larry Ellison's bid for PeopleSoft, but do you respect his strategy or him as a businessman? Would you do the same thing in his position?
A: No.

Why not?
Larry Ellison's play was consolidation at the expense of customers, forcing customers to re-implement PeopleSoft applications over a period of time into the Oracle enterprise applications suite--which I will tell you is not as good an application suite as PeopleSoft's.

There's not a lot I respect about consolidating an industry at the expense of customers. That's not a tactic I think anybody would say they'd want to emulate.

Oracle might differ, but I think most customers would tell you PeopleSoft has a stronger applications suite. The intent was consolidation at the expense of customers and in the process the choice for customers was going to go from three providers to two. And if you happened to want to run a database (other than Oracle) it would be one--SAP--because the Oracle application suite only runs on the Oracle database. There was nothing positive about this for customers...There's not a lot I respect about consolidating an industry at the expense of customers. That's not a tactic I think anybody would say they'd want to emulate. To me it's trying to corner a market. I'd rather have as my heroes people like Jack Welch and not the Hunt brothers.

You've lost some customers since this began?
In the June time frame, when this was such a shocking development, the message out of Oracle was, "Shut down the product line, fire the employees." There were customers that did not sign deals that they had already awarded to PeopleSoft. We had one customer sign a contact the week before that called us and asked if they could return the contract. We did. We didn't say, "Hey, you signed it. You have to live by it." We're not that type of company. There were a few customers that had already selected PeopleSoft that decided not to sign--and that was unfortunate. But by the end of that month, there were lots of other customers that had not only decided to continue on with PeopleSoft but we had customers that accelerated their purchases.

Do you think Larry's just trying to mess with your head? You know Oracle and Ellison. Is he serious or is it market competition through a different means?
I truly believe the Oracle saga is over. The board of directors of PeopleSoft has very clear protections against hostile takeovers...it's a staggered board. You can wait around till June, but you can't replace the board in June. Larry's saying, "I'll wait until June if I have to." Well guess what? You can wait until June, but you can't replace the board even in June! The articles of incorporation and bylaws include a shareholder rights provision that says if any company ever gets more than 19 percent of the company, that preferred shares are issued. There's four different levels of protection which have rarely--if ever--been overturned against a corporation's right to defend itself against a hostile takeover.

So what do you think he's trying to accomplish?
I think the intent originally was to disrupt the J.D. Edwards acquisition and harm PeopleSoft's business. When you have a company that's pulled off something impressive in terms of products that's moved ahead of you pretty convincingly--I think he's reached down and tried to attack that company.

Do you think he'll be left with no other decision than to call off his chase?
I don?t know. I really can't speculate about what's going on in his head. One of the things about Larry Ellison is that no matter how well you know him it's trying to predict the unpredictable. What I will say is that on Sept. 4 (PeopleSoft hosts an analyst meeting in New York on Sept. 4) I think there will either be profound confidence in the resulting PeopleSoft product line, business model, earnings projections--or there won't. The situation that exists today is that Oracle is very critically regarded by customers...call up 10 customers and ask how they feel about Oracle these days and they'll tell you they don't like it. The longer it goes on, the more there is a contrast between Oracle, the potential business partner, and PeopleSoft, the potential business partner.

One of the things about Larry Ellison is that no matter how well you know him it's trying to predict the unpredictable.

There are lots of moving points to this merger battle with Oracle--poison pills, lawsuits, antitrust investigations. Which is the most critical active front of the battle and how is it being fought?
None of them. It's not really being fought much anymore. It's pretty much over. In June-July, it was a big, big story--kind of the Oracle "shock and awe" campaign. But beginning the first week of July, the thing started to die a rapid death. From the beginning, the approach taken by Oracle was not so much to acquire PeopleSoft as to disrupt the business and block the J.D. Edwards acquisition. By the first week of July, two things happened that started to put all that to bed: Instead of disrupting our business, we had a record Q2...and then the Justice Department issued a proactive approval...They actually proactively commented that they thought it was in customers' best interests.

But Ellison isn't going away. The offer's still out there until Sept. 19.
The offer can be extended indefinitely. You can extend the offer every 30 days until the end of time. The only thing you have to do is tell the market how many shares have been tendered. But as you see, even those are going down. Now there's 8 percent or less of shares tendered and there's no arbitrage holders of our stock anymore...the saga is over. I don't spend any time on it anymore. All of our attention is now on maximizing J.D. Edwards.

You say you're not spending time on it. But we reported this week that PeopleSoft recently resumed its money-back guarantee program to keep sales up with the Oracle threat still there. Is that campaign working?
By and large, the Oracle campaign has caused enormous customer support for PeopleSoft. The unanticipated consequence of Oracle was a very emotional, supportive reaction of customers. The customer assurance program, we continue to extend--just to provide incentives to customers not to delay their transactions. Frankly, it's gone from a defensive tactic to one that's become an accelerant for our business.

If customers are loving the deal and things are working out great, what's your motivation for pursuing litigation against Oracle?
Well, when somebody tries to rob your bank--even if they don't succeed--I still think you press charges. We believe--and I think the evidence coming out now is clearly showing--that the attempt to acquire PeopleSoft was using the capital markets to harm PeopleSoft not necessarily as a legitimate attempt to own PeopleSoft...and so there's still harm and there is still a predatory act committed. I think that act did not have the desired outcome, but it was still nonetheless predatory and we did lose some business along the way.

So far what's been the response from customers?
Unbelievably good response. A neutral response would have been a win from my point of view to something this big...customers are not sitting back and saying, "I'll see how this works out." They're assuming it's going to work out great because of the respective product strengths and common partnerships and all that stuff.

How are you going to pull off the merger in a way that keeps customers and investors confident in the company?
We're going to have a two-hour analyst meeting where we are going to be very specific and in full disclosure on financial synergies, revenue increases--we'll do guidance from a revenue and earnings basis for Q4...the investment analysts that are looking for the benefit that comes from a combination of the two companies will have it; the industry analysts that are looking for the product road map will have the product road map in detail; the people looking for the distribution model and how PeopleSoft will go to market will have that very specifically. And at the end of two hours they will walk out of that room and say, "Man, these guys have got a great plan. When did they have the time to do it?" Or else they'll say, "It seems pretty muddled; it seems pretty convoluted still and we're worried."

When you get right down to it, the question is who should be in charge of the No. 2 business applications company in the world behind SAP? Craig Conway or Larry Ellison? Why should Craig Conway be the man and not Larry Ellison?
I think there's a tendency to personalize this Oracle-PeopleSoft thing way too much. I left Oracle in 1992. That was 11 years ago. I have spent no time commenting, coveting and envying Larry Ellison...There's nothing personal between me and Larry Ellison. I think if you ask a customer which person are you investing in, they'd say, "Neither of them." They'd say, "We make our decisions based upon architecture, based on features, functionality, company viability, customer support reputation"--and I think when you look at all those things PeopleSoft is clearly better than Oracle.