Oracle bid for PeopleSoft is 'political'

Oracle's move comes just days after PeopleSoft unveiled its surprise plans to buy mid-market enterprise resource planning vendor JD Edwards for $1.7bn (£1bn).

A JD Edwards acquisition would see PeopleSoft overtake Oracle in the business software market.

Analysts are split on the merits and chances of Oracle's audacious bid.

Analyst firm AMR Research dismissed the bid as 'typically provocative' and 'difficult to pull off'.

A note crediting four AMR analysts said it was 'a deal that had all the signs of a political move designed to derail PeopleSoft's plans to buy J.D. Edwards'.

But David Bradshaw, principal analyst at Ovum believes it could happen. 'There may be changes to the price, but I think the chance of success is pretty good,' he said.

Oracle has only $5.5bn in cash reserves, but said it would arrange a credit line with Credit Suisse First Boston to fund the deal.

If the bid is successful it would take PeopleSoft out of the market completely.

Oracle intends to continue to support PeopleSoft's existing software, but would not produce further products, instead offering support for migration to Oracle applications.

'We can offer [customers] a much more comprehensive set of services,' said Oracle chief executive Larry Ellison.

Oracle plans to offer PeopleSoft users help with migrating to Oracle's business applications.

This would include extending the deadline for support for users running PeopleSoft 7, and not charging additional licensing for moving to Oracle's products. PeopleSoft had been due to end its support for version 7 of its software later this year.

But Oracle may face difficulties in persuading users to switch to their applications, said Bradshaw.

He dismissed Oracle's claims that users would be attracted to Oracle's applications because of using its database software.

'The database is largely irrelevant, because you'll be tied to Oracle whatever you want. Users will choose the easiest migration. This could be good news for SAP,' he said.

According to Bradshaw, users will like the option of remaining on their current version of PeopleSoft, but may find swapping to SAP a more appealing choice.

'They are going to have to upgrade at some point, they know that. But we believe that there will be many PeopleSoft users that also have some SAP, and will see that as an attractive upgrade choice,' he said.

AMR's research note said: 'If I'm SAP I love this because it puts every PeopleSoft customer back in play.'