Oracle's waiting game

Oracle believes that it can still carry the day, but its battle to acquire PeopleSoft is getting tougher as time goes on.

With regulators taking longer than expected to make a decision, government trustbusters are reportedly building a case to challenge the deal. Meanwhile, PeopleSoft stock is soaring on investor enthusiasm for its merger with J.D. Edwards. All the while, the company's shares continue to hover stubbornly above Oracle's offer price.

On top of everything, PeopleSoft recently revised a money-back guarantee program that could cost Oracle a bundle, should its acquisition bid succeed.

Oracle has called the rebate program a potential deal-breaker. Here's why: If PeopleSoft gets acquired, customers would receive as much as five times the original purchase price of their software, if product support got reduced within four years.

But Oracle maintains that its resolve remains as strong as ever. This week, the company joined a group of PeopleSoft shareholders seeking an injunction against the program.

Executive vice president Chuck Phillips, a highly regarded Wall Street analyst who has since become acquisition consigliore to Oracle CEO Larry Ellison, spoke with CNET News.com about the next steps in this continuing software saga.

Q: What are the odds that this deal will happen--and in what time frame?
A: Based on what we're hearing now, we are waiting for the Department of Justice. It seems like a December or January event. Lots of customers agree with us. That's the only thing we can rely on. We think we've made a pretty strong case, and the facts support us pretty well. We think the odds are in our favor.

There have been reports that the Justice Department will oppose your bid for PeopleSoft. What's your latest understanding of the government's likely position?

We have options on a lot of people that want to be bought by Oracle.

The process is still under way. There are a very small number of people involved in this process, so anyone writing on rumors can't have access to direct information. It's understandable that people are going to speculate.

In terms of the process we're involved in, there is still a lot of work to be done and information we have to get them. It's a complex industry and a complex process.

Isn't a January decision later than you anticipated?
It's taking more time. They need more information. It's in our interest to give them every bit of data they need.

What's the big fuss about PeopleSoft's customer guarantee program, which Oracle recently indicated could prevent the deal from happening?
The issue is that they are creating a contingent liability for anyone who would acquire PeopleSoft and for shareholders. If existing shareholders today decided they want a different board, these same liabilities kick in.

The first problem is that it's a big number, and the second is that it's hard to define if you've violated any of the provisions, because it's software. Software changes, and features change and mutate into other features and functions. This is a commitment PeopleSoft hasn't even made to its customers. They've obligated everyone on the planet but themselves.

But hasn't Oracle promised to support PeopleSoft customers and products for at least 10 years, anyway?
It's the inability to define when one of these provisions get tripped. You could inadvertently trip a condition. It's an unnecessary legal quagmire and something the courts generally frown on.

Would Oracle call off the chase if the court denies an injunction?
We haven't said that. We've said it's an issue.

Oracle predicted that PeopleSoft would not be able to deliver on the promises of its merger with J.D. Edwards and that that would swing shareholders toward Oracle. It seems that investor enthusiasm for that merger remains high. Will Oracle have to adjust its strategy?

We're not deterred when something's hard.

We think that it's clear that it hasn't been working. They can prep reporters and analysts with lowball estimates and then claim victory. Just because I take one step forward doesn't mean I won the marathon. Their entire strategy is to roll the dice, put out a big number for next year to keep their stock up and hope we're gone by the time it's time to deliver on it.

Is Oracle losing its appetite for PeopleSoft at all?
No, not at all. I came from Wall Street. We've been through this before. It's the process. We are a very persistent company in everything we do. We're not deterred when something's hard.

Does this battle compare to any you saw as a Wall Street analyst?
IBM and Lotus went through the same thing. That was a hostile transaction, and it takes time to get it done. But shareholders have the right to get it done, if someone wants to give them money.

What's next if PeopleSoft falls through? Would Oracle try to acquire another applications company or an infrastructure company?
The PeopleSoft deal is just one we're working on. We have options on a lot of companies that want to be bought by Oracle. We can't get specific on who we're looking at, but there are many that would love to wear the Oracle red and white.

Is Oracle still in direct communication with PeopleSoft--aside from lawsuits, that is?
They have been unresponsive to all of our requests. We've tried calls, mail, carrier pigeons--we've made plenty of overtures. They know where we are.

Are you still actively lobbying institutional investors to support Oracle?
We think they already do support us. That's not the issue. Shareholders buy stocks for one reason: to sell them at a higher price later. These aren't collector's items. There's no reason for them to oppose it.

Can you clarify what would be your official policy on migration and support if the deal were to close tomorrow?
There's no pressure for anyone to migrate. If customers want to continue with PeopleSoft, that's fine. It remains a nice and profitable business for us. They'll continue to pay maintenance. But if they choose to migrate, they'll get a license on the spot. So they won't lose any options; they'll gain more.

You used to be an enterprise software analyst, and now in your current position, you have a unique vantage point. What's your feel for the first half of the year for enterprise software, given the seeming rebound in the economy?
We're seeing some signs of improvement. Certainly, it feels better than a year ago, but it's still a delicate recovery, and we don't want to get too bullish. But it feels like the worst is over, and we feel we're in a good position to capitalize and take market share. But we continue to feel that the amount of money spent on information technology is not going to boom. People spent too much in the boom. We're not counting on a big increase in IT spending.

Ergo Larry Ellison's dictum that there needs to be more industry consolidation?
Yeah. So the pie won't probably expand, but if we do it right, we'll probably get a bigger slice of it.