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PeopleSoft, Oracle talked merger in detail

Oracle president says the companies were thinking of combining before the hostile takeover attempt was launched.

SAN FRANCISCO--PeopleSoft and Oracle had numerous discussions about a friendly merger about a year before Oracle launched its hostile bid for PeopleSoft--including an in-person meeting among the company's top executives.

Testifying Friday in U.S. District Court, Oracle President Safra Catz revealed that the merger talks had advanced beyond a single conversation between Oracle Chief Executive Larry Ellison and PeopleSoft CEO Craig Conway. Both companies had previously acknowledged the merger talks, but details were limited.

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Oracle is facing the Department of Justice in an antitrust trial. The government contends that if Oracle is permitted to buy PeopleSoft, the market for large-scale business software applications would have insufficient competition. PeopleSoft executives have also opposed the takeover offer.

Catz pointed out that in those earlier discussions, PeopleSoft executives had not been opposed to a merger--under the condition that they run the combined company.

Catz and a few other Oracle executives met with PeopleSoft's chief financial officer, Kevin Parker, in June 2002 to discuss the proposal, Catz said. The companies set up the meeting shortly after Conway called Ellison and suggested they merge their applications businesses, she said.

"We talked about getting our applications businesses together to make them more competitive against SAP and Siebel," Catz said.

Also during Catz' day in court, Oracle documents were presented that indicated the company would fire nearly 6,000 PeopleSoft employees if the acquisition goes through.

The job cuts would save Oracle about $1.17 billion annually by eliminating redundant positions, according to the acquisitions efficiencies analysis document, which Oracle prepared last July. Oracle's analysis assumed that PeopleSoft would complete its acquisition of rival J.D. Edwards, a deal announced a few days before Oracle launched its hostile bid for PeopleSoft and completed last fall.

Catz dismissed the layoff analysis as a "worst-case scenario" based on the assumption that the combined company would lose some revenue from PeopleSoft customer defections during the proposed $7.7 billion merger.

Oracle would largely eliminate PeopleSoft's marketing and sales staff, according to the model. It would also make heavy cuts to the company's software development and administrative groups. The cuts would also target former J.D. Edwards staff in each of those areas.

PeopleSoft fired about 1,000 employees after its smaller $1.8 billion acquisition of J.D Edwards last year. The eliminated positions represented about 7 percent of the companies' combined work force.

The Justice Department opened the trial on June 7, arguing that only German rival SAP would be big enough to compete with Oracle once it swallowed PeopleSoft. Oracle, which began presenting its case this week, counters that smaller providers of enterprise applications, plus outsourcing firms and Microsoft, all provide enough competitive pressure to sustain the market. Oracle will continue its case next week, when the outspoken Ellison is expected to take the stand. The trial is slated to close by July 2.