Oracle shopping list includes eight other firms

Oracle laid out the pros and cons of nine potential acquisitions, offering in court documents a rare glimpse into the software maker's merger mindset when sizing up potential deals.

The documents were released late Monday by the U.S. District Court in San Francisco, as part of the Justice Department's antitrust case against Oracle over its hostile takeover bid for PeopleSoft.

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Sybase was one of the nine companies on Oracle's April 2003 list of potential acquisition candidates. That document was presented by Oracle's business development team and Safra Catz, Oracle co-president, to the company's board of directors last year. Other possible targets included BEA Systems, Lawson Software, Cerner, Business Objects and PeopleSoft. Documentum, SCT and J.D. Edwards were also on the list, but have since been acquired by other companies.

The document provides a view into how Oracle evaluates companies--a practice employed by numerous business development teams throughout corporate America.

"Our (mergers and acquisitions) team updates us all the time on what's available, affordable and things we may like to consider," said John Chen, chief executive of Sybase. "But my bites are a bit smaller than their big bites."

In citing Sybase as an acquisition target, Oracle's mergers and acquisitions group noted Sybase was the last viable relational database management system vendor and had 45,000 customers on active maintenance, with a 96 percent renewal rate.

Oracle also took note of Sybase's 73 percent market share in the mobile database market and strong overall growth in the Asia-Pacific, or APAC, region, according to the document. And the database giant also cited Sybase's "attractive operating margins already built as a stand-alone business."

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"It's nice they noticed we're doing something right," Chen joked. "They?re usually pointing out all the things we're doing wrong."

But in its document, Oracle also listed the potential drawbacks of a Sybase acquisition.

Oracle believed a substantial percentage of Sybase's customers will eventually migrate out its database technology for Oracle over time. And that Sybase's growth prospects were limited to its mobile database products.

"That's not true. We have been growing, especially in the APAC region," Chen said. "Migrating to a new database platform is not an easy thing to do. That's just wishful thinking on their part."

Oracle's court papers

Click the links to see the court documents of Oracle's internal assessment of nine merger candidates evaluated in April last year.

• Sybase
• BEA Systems
• Lawson Software
• Cerner
• Business Objects
• PeopleSoft
• J.D. Edwards*
• Documentum*
• SCT Corp.*

*Acquired by others since Oracle's assessment.
Source: U.S. District Court in San Francisco

Acquisition rationales were also given for the other eight companies, with varying degree of detail. In sizing up BEA, Oracle noted its "entrenched management team is unlikely to welcome an acquisition offer."

Nonetheless, in citing the advantages of a BEA merger, Oracle stated it would improve its competitive positioning in the middleware space--guaranteeing Oracle a spot in every bid.

Oracle also noted a BEA acquisition would raise Oracle's profile among developers and give it access to "strong management talent."

Lawson Software, however, was a self-wounded runner-up in Oracle's eyes.

"Company has had the worst performance of all major enterprise apps vendors since going public, (due to) lack of ability to manage operations to meet expectations," according to the document.

Oracle also noted another drawback of a Lawson deal was the founders' large stake, which puts the merger decision largely in their hands, and that "management has in the past been stubborn on valuation requirements."

However, Lawson's midmarket focuses on health care, retail and professional services were seen as complimentary to Oracle's strengths, according to the document. And Oracle's mergers and acquisitions team also noted that buying the company could let Oracle increase its maintenance revenue by underpricing competitors.

BEA and Lawson declined to comment on the Oracle assessments.

In the months that followed the document presentation to Oracle's board, several companies named as potential acquisition targets were bought--by companies other than Oracle.

PeopleSoft announced plans to acquire J.D. Edwards in June last year, which was quickly followed by Oracle's hostile bid for PeopleSoft.

Last October, storage giant EMC announced a $1.7 billion acquisition of Documentum, a content management software vendor.

And in December, SunGard Data Systems announced plans to acquire Systems & Computer Technology (SCT) in a stock deal valued at $584 million. The combined company is now called SunGard SCT.