A court in Florida will convene tomorrow, to consider the software industry's largest merger. Sitting in the Delaware Chancery Court, vice-chancellor Leo Strine will decide whether PeopleSoft is allowed to use a poison-pill defence to prevent a takeover by rival Oracle.
The decision could be the most critical stage in a battle between the two companies' boards that started in June last year when Oracle's chief executive, Larry Ellison, launched a hostile bid for PeopleSoft. Oracle issued its best and final offer for PeopleSoft, at $24 a share, last month. Mr Ellison threatened to walk away from PeopleSoft if over half the shareholders did not accept the deal.
Oracle claims that investors with 61 per cent of the shares have now voted to accept the $24 offer. This leaves PeopleSoft's poison pill - a threat to flood the market with additional shares - as the only obstacle to the takeover. Oracle's bid cleared its last regulatory hurdle in October, when the European Commission ruled that the deal did not pose any problems on competition grounds.
With PeopleSoft nearly in their grasp, executives at Oracle could be expected to be bullish about the future. The deal, assuming next week's case goes according to plan, will secure the company's position as a competitor to Microsoft and enterprise software specialist SAP.
But at Oracle's OpenWorld conference in San Francisco this week, Mr Ellison appeared short on new ideas. Veterans of previous Oracle conferences noted that he seemed to have changed little in his speech from last year.
The PeopleSoft case appears to have become a distraction for Oracle, which develops software to run large databases, and applications to perform specific business tasks, such as financial management or management tools for manufacturing.
The PeopleSoft deal was meant to expand Oracle's share of the applications market, where it has been losing ground to SAP and also faces threats, at the low end, from Microsoft's growing range of business applications.
Industry analysts point out that other companies, including Microsoft and IBM, have done a better job of understanding that the IT industry is becoming more focused around commodity products, managed as a utility. Oracle's vision - that businesses can only really benefit by having "Oracle everywhere" - comes over as either naive or arrogant, according to Dale Vile, a director at research firm Quocirca.
Oracle, though, remains a powerful company with software technology that its rivals struggle to match, especially in the area of IT infrastructure. Its database is still the first choice for most government projects. Competitors, including SAP, develop their applications to run on the Oracle database engine.
But the core database market is now relatively mature. According to Oracle's chairman, Jeff Henley, Oracle expects core database sales to grow at around 5 per cent annually. Add-on options for databases, middleware (software that sits between the operating system and application) and the applications themselves are where the growth is. "We will still get additional seats for the core database, but we don't believe it will grow as fast [as it has]," says Mr Henley.
Instead, Oracle is banking on selling new technologies, such as the computer grids it is developing in partnership with Dell, Intel and storage company EMC, customer data hubs and what it calls "information-age applications".
Computer grids work by taking a large number of cheap, PC-based servers running Linux and tying them together so that they work in a similar way to a mainframe computer, but at a fraction of the cost. Oracle says that its grid software running on 64 Dell PC servers, with a list price of $180,000 (£95,000), is comparable in performance to an IBM mainframe costing $3m.
"We are leaders in what we call 'grid'. The way we do our information architecture is pretty unique and we have a lot of the software components IBM has," says Mr Henley. "But IBM has done a good job of branding. They have a much bigger marketing budget than we do."
If grids are about allowing businesses to process data more quickly using cheaper equipment, then Oracle's data hubs are more about bringing all the data together.
The thinking at Oracle has long been that businesses will be more productive, and better able to cut out costs from their IT systems, if they put all their data into a single (Oracle) database. This is something Mr Ellison describes as the "holy grail" of the information age.
But although Oracle executives say that this is still the best way to manage information, the company appears to be less dogmatic on the subject. Rather than demanding that a company moves all its data to one place, the data hubs work by linking data together.
This enables companies to work with information from legacy, in-house applications, with external data from customers and suppliers and with data held in applications from Oracle's competitors.
The PeopleSoft bid clearly accounts for much of this change in approach, as the hubs will provide a way for Oracle or PeopleSoft customers to integrate the two sets of software products and eventually to move over fully to the Oracle platform. Oracle has started by marketing a hub for customer data, but is developing others, including hubs for the financial services industry.
The hubs are a way for companies that have already invested heavily in business applications - whether from PeopleSoft or Oracle competitors such as SAP - to protect their investment in that software, but still see the benefits of having a single view of all their business data. It also allows Oracle to exploit its strengths in infra-structure software, one of its fastest-growing markets.
Mr Henley expects the market for application servers, a critical part of this infrastructure, to grow at between 15 and 20 per cent a year. "It is an under-penetrated market, and one that we can grow much faster than the core database." He adds that Oracle also expects growth in the applications market, especially by selling additional software modules to existing Oracle customers.
"Our infrastructure has shown the better growth rate, not just in Europe but around the world," he says. "Applications have been soft for everyone the past year. But on a competitive basis we feel we have done well. Our applications business can recover to the point where it grows as fast as our infrastructure business."
The key to this, Oracle believes, is "information-age applications" that give businesses timely, consistent and complete data. The Oracle information architecture, Mr Henley says, is the applications and the infrastructure together. He rejects the charge that Oracle has been distracted from technological innovation by bidding for PeopleSoft.
"We are now fully fleshing out our information architecture, which is a combination of middleware and applications," he says. "We have combined some of the data models to create the data hub. That is a phenomenal innovation.
"Information-age applications, data hubs and grid infrastructure are the three things we have been talking about for a year," he says. Mr Henley admits that the PeopleSoft deal may have obscured part of the message, but adds: "We are simple people and these are three really big ideas. But it is now about execution. We believe we have a leadership position, but we now have to communicate that and execute around it. We are moving into the execution phase now."
And Mr Henley does not rule out further acquisitions, whatever happens in Delaware next week.
"If we acquire it will be to give us a stronger position in the marketplace," he says. "It is not to buy growth. The most prominent deal is PeopleSoft, where we feel it gives us more application customers than SAP. Other acquisitions will be to improve our product offering. It is not that there is no growth left in Oracle, so we need to buy something. But there are acquisitions that can make us grow faster."Reuse content