Beware Oracle's free offer, JD Edwards tells customers

12.00pm - By ADAM GIFFORD

DENVER - Enterprise software company JD Edwards has come out fighting against Oracle's hostile takeover bid for Peoplesoft which would nix a planned JD Edwards-Peoplesoft merger.

Chief executive Bob Dutkowsky said the Oracle plan raised such serious anti-competition issues it was "highly likely" it would be blocked by regulators in the United States or Europe.

"It will eliminate at least one of Oracle's major competitors in several market spaces to the obvious detriment of customers," Dutkowsky told media and analysts gathered in Denver for JD Edwards' annual user conference.

Oracle supremo Larry Ellison has said Peoplesoft development will cease and Peoplesoft customers will be offered upgrades to Oracle's new "11i" applications.

"This elimination of a competitor and its products and their ongoing development will reduce customer choice and product support.

"This harm to customers is exactly what anti-trust laws are designed to prevent," Dutkowsky said.

All three companies make software used to run large organisations.

JD Edwards, which has been in New Zealand about 15 years, and has 55 staff and 85 customer sites, is traditionally strong in manufacturing, distribution and asset-intensive industries.

There is only a small overlap with Peoplesoft which set up shop in New Zealand just over five years ago and has just over 20 local staff and 42 customers. It started as a provider of human resources software and is strong in white collar industries like financial services, government, education and telecommunications.

Oracle's applications compete with both companies, but the bulk of its revenue comes from software to manage data and middleware such as application servers.

Dutkowsky said a promise by Oracle to upgrade Peoplesoft customers for free carried little weight.

"In the world of enterprise software, free is not free. The cost to an enterprise to implement software of the magnitude of JD Edwards, Peoplesoft or Oracle, the software often is 5 percent of the real cost. There is implementation, there is build-out, there is customisation, there is training thousands of users."

He said JD Edwards won several recent bids against Oracle where Oracle offered to give its software away.

Dutkowsky said JD Edwards and Peoplesoft had been working on their merger for more than eight months, so it could move very quickly to complete the necessary regulatory steps and complete the US$1.7 billion share swap within three or four months.

He dismissed Ellison's claim JD Edwards and Peoplesoft were financially stressed, making a merger risky.

"In the most difficult software environment any of us has seen for 20 years, JD Edwards had six profitable quarters in a row. We have about $400 million in cash with no debt. Peoplesoft has about $2 billion in cash," Dutkowsky said.

"You can draw your own conclusions about whether Oracle just wants to disrupt the business, and at $16 a share you can ask how serious the bid is."

Analyst Josh Greenbaum from Silicon Valley-based Enterprise Applications Consulting said regulators on either side of the Atlantic were unlikely to block Oracle.

"The US Department of Justice is taking a softer line on anti-trust cases in the current political environment, and neither Oracle nor Peoplesoft are big enough players in Europe for the European Commission to step in. There has to be a good old battle of value and merit," Greenbaum said.

JD Edwards will have to sit on the sidelines while Peoplesoft shareholders weigh up whether to approve the merger or take Oracle's $16 a share offer.

"If Peoplesoft switched its offer to cash, it wouldn't need to seek shareholder approval," Greenbaum said.

He said JD Edwards and Peoplesoft were a good fit, particularly because of Peoplesoft's weakness in manufacturing, although there have been few successful software industry mergers of two equals.

"What succeeds is where you have a wholesale acquisition and the acquired company is closed down and its technology subsumed into the acquirer's products."

Greenbaum said Ellison may be playing out a bigger industry strategy.

"When I woke up on Friday morning and heard the news, I thought 'That's not right, it should be Oracle is selling its applications business'," he said.

"Oracle has been tending to give away its applications, and even then it is losing deals."

* Adam Gifford is in Denver as a guest of JD Edwards.