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Ellison: Oracle not reaching for Sun

The Oracle CEO shrugs off suggestions that the software maker might try to buy hardware partner Sun and delves into the PeopleSoft bid at an annual shareholder meeting.

CEO Larry Ellison and other executives sounded off at Oracle's annual shareholder meeting Monday, saying they won't overpay for PeopleSoft and have no interest in buying Sun Microsystems.

Asked whether Oracle has considered buying hardware partner Sun, Ellison said he had thought about it but had decided it was a "bad idea."

"I don't think Oracle should be in the hardware business, so I don't think you'll see us buying any hardware companies," Ellison said at the meeting, held at the software maker's headquarters in Redwood Shores, Calif. "But we have thought about it."

Rumors that Sun may be acquired have surfaced periodically and began percolating again recently, after the server giant unexpectedly warned that it would post losses and slash 1,000 jobs.

Ellison's remark that Oracle has no intent acquiring Sun or any other hardware company was welcomed by one analyst.

"That's good," said Charles Di Bona, an analyst with Bernstein Investment Research and Management. "I think they should be looking at middleware, instead. BEA is one place where they could get a more strategic part of the stack."

He noted that although Oracle has its own middleware--an application server--it is lagging in the market.

On the topic of acquisition targets, Oracle's chief financial officer, Jeff Henley, said the company would not "overpay" for PeopleSoft. Oracle is offering $7.25 billion, or $19.50 per share, for the rival software maker, whose shares traded at $20.70 Monday.

"We have to make sure it's done at a price that's good for us and our shareholders," Henley said.

The CFO appeared to downplay Oracle's five-month, hostile quest for PeopleSoft, which is currently under extended regulatory scrutiny. Henley said a successful acquisition of PeopleSoft "would be icing on the cake, at this point."

Analysts agree that there's a certain point where it makes little economic sense for Oracle to do the deal. PeopleSoft's acquisition of J.D. Edwards has effectively increased Oracle's takeover bid by more than $1 billion.

"Even at this level, they're pushing the envelope, now that the J.D. Edwards deal has closed," Di Bona said. He added that he is also concerned about the intangible costs that might be included with a PeopleSoft acquisition, such as management distractions.

Ellison added that no matter how the PeopleSoft deal plays out, Oracle plans to launch bids to buy other technology companies in order to grow its business. He didn't name any specific targets. The business software maker has had little appetite for acquisitions in the past, but slower overall growth in the information technology industry is changing that, Ellison said.

CFO Henley cited the PeopleSoft bid as one reason Oracle may hold off on paying shareholder dividends. However, he added that the company's board is giving the matter more thought, in light of U.S. President George W. Bush's proposed plan to temporarily reduce taxes on corporate dividends.

Questioned about Oracle's behavior in a controversial $95 million contract with the state of California last year, Dan Cooperman, Oracle's general counsel, said the company had changed its policy pertaining to political campaign contributions to avoid the appearance of any wrongdoing in the future. Under its new policy, Oracle won't give contributions to any politicians who have ties to government agencies that recently purchased its software or are considering a major contract, Cooperman said.

Cooperman said Oracle has always tried to isolate political contributions from the sales process, calling the California debacle "an appearance issue." However, the company admitted during legislative hearings last year that it erred when it used a Sacramento lobbyist who was involved in the sales effort to deliver a $25,000 campaign contribution check to former Calif. Governor Gray Davis just days after officials under Davis signed a contract with Oracle.