Software maker Oracle Thursday reported that its fiscal fourth-quarter net profit was up as it booked its second straight quarter of rising year-on-year revenue. Earlier in the day, Oracle’s hostile takeover for PeopleSoft was vetoed by that company’s board — leaving software industry workers, investors, and customers wondering where the hostile-takeover battle is headed next.
FOR ITS KEY QUARTER ended May 31, the Silicon Valley-based company had net income of $858 million, or 16 cents per diluted share. One year ago, Oracle’s net profit was $655.9 million, or 12 cents a share, including a write-off of its investment in Liberate Technologies Inc. that reduced earnings by 2 cents per share.
Total revenues rose to $2.83 billion from $2.77 billion a year earlier. Of that total, new software license revenues, watched as a proxy for growth, were up 1 percent to $1.2 billion.
Analysts on average had expected Oracle to report profit of 14 cents per share on revenue of $2.75 billion, according to tracking firm Thomson/First Call.
Oracle executives said the results showed the company was gaining ground against competitors in a tough market.
“This has been a very strong quarter for us, even with the war in Iraq and the SARS concerns right in the middle of it,” Oracle Chief Financial Officer Jeff Henley said.
Oracle, best known for its high-end database software, last Friday launched a $5.1 billion hostile takeover bid for PeopleSoft, its smaller rival in the business-automation software sector.
PeopleSoft’s board of directors formally rejected Oracle’s offer Thursday, saying the bid dramatically undervalued the company and would stifle competition and limit customer choice. Oracle made its move against PeopleSoft Friday — just days after PeopleSoft bid for another rival, J.D. Edwards, which would have pushed PeopleSoft above Oracle in terms of market share for business software.
Takeover battles have been rare in the software industry, and this one is personal. Oracle and PeopleSoft have long had a nasty relationship, marked by sniping between Ellison and PeopleSoft Chief Executive Craig Conway, who worked for Oracle from 1985 to 1993.
Conway has made no effort to conceal his contempt for Ellison, likening him to a bully “who picks a fight in a school yard knowing people will gather and watch.” Conway last week called Oracle’s bid “a pathetic tactic,” saying that the offer “is designed to disrupt the company’s strong momentum at significant cost to PeopleSoft’s customers.”
Oracle’s earnings report had initially been scheduled for next Tuesday, but was moved up as the takeover battle heated up.
“I think it’s all marketing,” said Brendan Barnicle at Pacific Crest Securities. “They want to get out there and say they had a great quarter.”
PeopleSoft said Thursday that Oracle’s offer would face lengthy antitrust scrutiny and probably wouldn’t win regulatory approval. The company also said it wouldn’t let the Oracle’s surprise attack interfere with its business — including its bid to buy J.D. Edwards.
J.D. Edwards CEO Bob Dutkowsky joined the war of words Thursday issuing a statement that “Oracle’s hostile action benefits Oracle alone and is designed to disrupt the momentum of both of our companies and the technology marketplace.”
Oracle’s move has raised doubts about the future of both PeopleSoft and J.D. Edwards — making it tougher for those companies to close sales with customers who are reluctant to buy software from a company that might not be around much longer.
Wall Street initially bet that Oracle would boost its $16-a-share offer, and investors bid up PeopleSoft stock up to $18.84 Monday. But doubts about the deal have pulled PeopleSoft’s stock lower this week. The stock closed at $17.37 Thursday, down 25 cents.
Analysts point out that Oracle’s bid for PeopleSoft is a win-win situation. If it succeeds, Oracle will eliminate a key competitor — and pick up substantial new business if it can move PeopleSoft customers to its own products. On the other hand, if the bid loses, Oracle has already spooked customers industrywide into thinking twice “before doing business with smaller, pure-play applications companies that run the risk of being acquired,” according to Cheng Lim at Fulcrum Global Partners.
Some Wall Street analysts said Thursday that uncertainty about PeopleSoft’s future had already begun to hurt sales.
“We believe there are some savvy customers out there that will be opportunistic in this period of uncertainty to gain better deals on additional software purchases, or in renegotiating maintenance contracts,” Merrill Lynch analyst Jason Maynard wrote in a research note. Deutsche Bank also lowered estimates for PeopleSoft, saying that it expects new deals to come to a “virtual halt.”
Regardless of the outcome, many analysts expect to see more takeover bids by the software industry’s biggest players.
“You absolutely need the consolidation,” said Barnicle. “The problem right now is that (software) prices continue to fall because you’ve got so many players in the space.”
The Associated Press and Reuters contributed to this report.