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Volume 68, Issue 150, Monday, June 23, 2003 

News


UH stands to lose from Oracleis plans for PeopleSoft

By Matt Dulin
The Daily Cougar

PeopleSoft, Inc., the software maker that provided UH with its suite of human resources, financial and student information services applications, is trying to fend off a hostile takeover from rival company Oracle -- a takeover that UH finance expert Praveen Kumar says puts Oracle in a win-win situation and PeopleSoftis customers, like UH, in a position to lose.

Oracle offered a $5.1 billion cash tender offer June 6 to buy all of the outstanding shares of PeopleSoft stock. After facing a rejection from PeopleSoftis board of directors and resistance from PeopleSoft management and shareholders alike, Oracle upped the ante Wednesday with a $6.3 billion offer, which PeopleSoftis board of directors is likely to reject again. PeopleSoft rejected the previous deal on the grounds that it would be anti-competitive and wouldnit receive Justice Department approval, among other concerns.

"The Justice Department would take a serious look at this merger," Kumar, the department of finance chair, said. "The smaller number of players in a market, the easier it is to exercise price control. Itis not really clear now whether or not Justice would approve the deal."

Even if a deal isnit made or a deal isnit approved by the Justice Department, Kumar said, Oracle will reap some benefits from the move.

"Victory for Oracle may not be simply consummating some kind of merger with PeopleSoft. Even if the takeover fails, Oracle has already delayed PeopleSoftis merger with J.D. Edwards. Itis also distracted PeopleSoftis management," he said.

Bob Shortle, the project director for Future Administrative Systems Team, the implementation team that set up PeopleSoft at UH, says that is the key harm coming out of Oracleis move, and the No. 1 worry on UHis mind.

"It sets up a lot of unknowns. With trying to deal with Oracle, PeopleSoft could easily lose its customer focus, putting product development at risk as well," Shortle said. 

Oracle thus far has made it clear it will discontinue the PeopleSoft product line but it will try to incorporate its features into Oracle products. That way, a few years down the line, Oracle stands to profit from PeopleSoft customers switching to Oracle products.

A switch like that could end up costing UH -- which paid more than $40 million to purchase and install PeopleSoft -- "hundreds of thousands, easily millions," Shortle said.

The Higher Education Users Group, which represents some 650 colleges and universities which use PeopleSoft products, spoke out against Oracleis move in a press release June 13, calling the proposal "appalling" and "unacceptable" to the students and staff of its member institutions.

Ultimately, however, Shortle says the immediate worry is customer support.

"We should always worry when Silicon Valley takes away customer services," he said.

Kumar agrees.

"We should worry no matter what. The bid represents underlying trends and dynamics of the industry. If Oracle doesnit get PeopleSoft, just wait -- Microsoft or other software giants could come into the picture," Kumar said. "The chances of PeopleSoft surviving down the line are very low."

Kumar compared Oracle to any industry giant seeking to secure profits.

"People forget that in the early 1900s, there were as many as 2,000 automobile companies" and today there are perhaps half a dozen key corporations, he said. 

While such consolidation is a natural sign of a maturing industry, Kumar says that Silicon Valley executives, who are used to double-digit profit growth, are more being aggressive. 

"These are people who think that if they donit get double-digits, they think itis the end of the world," Kumar said.

PeopleSoft itself is interested in expansion, and earlier this month announced its intentions to acquire J.D. Edwards, a similar but smaller software company that offers supply-chain management software.

Shortle says that merger "makes a better fit" because it lets PeopleSoft expand into markets the company hasnit tapped.

Kumar says that deal, which recently involved PeopleSoft offering its own cash tender buyout, was the trigger that prompted Oracleis offer.

 Send comments to dcnews@mail.uh.edu

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