Oracle, the US software giant, launched a surprise bid yesterday to buy out its rival PeopleSoft for $5.1m (£3.1m), a move that heartened investors around the world because it indicated a revival in tech sector spending after a three-year lull.
From Oracle's point of view, the bid appeared to be aimed at preventing PeopleSoft, which specialises in business software applications, from forming an alliance with JD Edwards that could pose a competitive threat in the applications market.
It also suggested that consolidation was the obvious response of software manufacturers to a market that has remained largely in the doldrums since the bursting of the great dot.com bubble in 2000-01.
"Given PeopleSoft's current prospects and plans, we believe our offer presents compelling value to PeopleSoft shareholders," Oracle's executive vice-president, Jeff Henley, said. "We expect there to be substantial cost savings and minimal business integration risk."
In announcing the bid, Oracle said it would go directly to PeopleSoft's shareholders early next week with a cash offer of $16 a share, modestly above PeopleSoft's closing price of $15.11 on the Nasdaq index on Thursday. PeopleSoft's share price quickly jumped above $18 as the market reacted to the news, suggesting that the final bid from Oracle might have to be $20 a share or higher to be successful.
Oracle's share price, meanwhile, drifted modestly downwards. The acquisition of PeopleSoft makes a lot of sense since Oracle has struggled to make a name for itself in business software applications - used to run personnel departments, manufacturing operations and other day-to-day business functions.
But a power struggle clearly beckons. On Monday, PeopleSoft said it wanted to buy JD Edwards for $1.6bn in a deal that posed a direct threat to Oracle.
Share traders responded positively to the overtures. The Goldman Sachs software index jumped 3 per cent, before falling off slightly. In Britain, shares in Sage, the accountancy software group, rose nearly 6 per cent as traders focused on its valuation in the aftermath of Oracle's bid.