June 21, 2004 8:10 PM PDT

For Oracle, a range of acquisition targets

SAN FRANCISCO--Siebel Systems and BEA Systems are on Oracle's wish list of potential acquisitions, according to a videotaped deposition of Oracle Chief Executive Officer Larry Ellison.

Those two companies were among the several named as potential acquisition targets for Oracle, during the third week of the Justice Department's antitrust trial against the software company and its proposed takeover of rival PeopleSoft. Other potential candidates included Lawson Software and J.D. Edwards.

"Tom Siebel came to my house and tried to sell me Siebel," Ellison said, adding that he would put the company as his next choice if Oracle is unsuccessful in its bid for PeopleSoft.

"We think (PeopleSoft has) a good engineering team. They have a got a large customer base, a larger and more important customer base than our second choice, which would be Siebel," said Ellison.


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Industry watchers have repeatedly asked Oracle whether it would be interested in acquiring software maker BEA. Oracle has said that in addition to PeopleSoft--or perhaps as an alternative--it has considered acquiring companies in other markets, including BEA.

Talk of potential Oracle acquisition targets surfaced in videotaped depositions of Ellison and Jeff Henley, Oracle's chief financial officer, during the trial in U.S. District Court here. Also during the trial, an Oracle document referenced in court included a list of potential acquisitions the company was toying with in April last year.

The list, presented to Oracle's board during an April 2003 meeting, named these companies as potential acquisition targets: BEA, Sybase, Business Objects, J.D. Edwards, PeopleSoft, Lawson, Documentum, Cerner and SCT.

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Larry Ellison, CEO, Oracle
During his deposition, Ellison confirmed that Safra Catz, Oracle co-president, had called J.D. Edwards about a possible acquisition prior to PeopleSoft's announcing its plans to acquire the midmarket player. But J.D. Edwards never returned Catz's call.

Oracle felt J.D. Edwards would lend scale to its operations, but in the end it was less attractive than a PeopleSoft acquisition, Ellison said.

"A lot of their customers were off support--in other words, J.D. Edwards' technology was so old people had stopped paying support. They were kind of running the J.D. Edwards' stuff, but had no plans to ever...keep it current," Ellison said.

As early as spring last year, Oracle also considered Lawson, according to a videotaped deposition of Henley.

The Justice Department is trying to derail Oracle's bid to buy a reluctant PeopleSoft, a chief rival in the market for software packages that businesses use to manage payroll, human resources and related functions. Antitrust regulators contend that the market would be left without sufficient competition.

List of targets
In April 2003, the Oracle board was presented with a list of potential acquisition targets. On that list, Lawson was described as a "complementary" midmarket acquisition for Oracle, Henley said.

That presentation came roughly three months before PeopleSoft announced its acquisition of J.D. Edwards--which prompted Oracle to announce its hostile takeover bid for PeopleSoft.

Oracle's acquisition list was particularly interesting, given that Oracle has downplayed J.D. Edwards' importance, saying last year that it would rather have acquired a PeopleSoft that didn't include J.D. Edwards.

The list of potential acquisition candidates was put together by Oracle's mergers and acquisition group, headed by Catz, who also spearheaded the PeopleSoft takeover bid.

Henley was asked during his deposition whether a Lawson acquisition was discussed by the board. "I can't remember if we discussed it. I believe we would have at least talked briefly about it," he replied. "I mean, in these meetings, these things trigger a lot of conversation...(so) I'm sure we must have at least mentioned it."

He said he didn't recall where the discussion went. "I just don't remember what degree of discussion we would have had about Lawson," he said. "But we wouldn't have put it in here if we didn't think this was something we should think about."

He added that he didn't know whether there were any discussions between Oracle and Lawson regarding a potential merger.

Henley said acquiring J.D. Edwards would have given Oracle a stronger presence in the applications market. "Again, the theme has been that we felt that getting a stronger presence in the applications space would be useful to us," he explained. "So they were in the applications space, along with Lawson, PeopleSoft...Cerner--a number of other companies. So it was really in that spirit that it gives us...a bigger footprint in the applications market."

Pricing strategies
During late-morning testimony, California Institute of Technology professor Preston McAfee discussed competition and pricing strategies used by technology companies generally and Oracle specifically.

McAfee, a Justice Department expert witness who reviewed some Oracle customer discount forms that its sales representatives submitted to executives for approval, said Oracle would reduce its price by 13 percent to 26 percent, if it knew it was competing against PeopleSoft.

The CalTech professor testified that customers would be paying 5 percent to 30 percent more for Oracle products if PeopleSoft were not around to offer competing prices.

Customers like GAF Materials, for example, had Oracle's sales staff rushing to get the software maker's top executives to sign off on a discount of up to 85 percent less than the list price for Oracle's Professional User E business suite 2003 and other products. GAF was contemplating buying $6.7 million in software licenses, based on list price, and $1.5 million in support.

"We're in a head-to-head battle with PeopleSoft. We've been told we have the functional vote, but GAF claims adamantly that they can run their business equally successfully on either PeopleSoft or Oracle," a salesperson wrote in one of the discount request forms. PeopleSoft CEO "Craig Conway is calling in to the account to try to delay decision past May 31 and (has) gotten ultra aggressive on the price and discount to win the business."

On cross-examination, McAfee acknowledged that some of the materials he relied on came from PeopleSoft customers, which could have had a bias.

Oracle is expected to present its case after the Justice Department finishes. The nonjury trial, which began June 7, is expected to last about four weeks.

 

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