Why Oracle Loves a Fight


Oracle President Charles Phillips has had nary a dull moment since arriving at the database giant's Silicon Valley headquarters two years ago. A well-known tech investment banker at Morgan Stanley in New York before joining Oracle (ORCL), Phillips is one of several Oracle execs credited with winning over investors during his company's long, hostile, but ultimately successful takeover bid for rival PeopleSoft.

Now Oracle is back at it, even as the acquisitive software maker is busy trying to integrate PeopleSoft's business into its operations. On Mar. 8, Larry Ellison & Co. announced an offer to acquire Retek (RETK), a Minneapolis outfit that specializes in software for retail outfits like Best Buy (BBY) (see BW Online, 3/9/05, "Oracle Parries a SAP Thrust"). The timing was interesting: Just eight days earlier, Oracle's biggest rival in the business software market, German outfit SAP (SAP), announced its own plans to acquire Retek. And Oracle's $9-per-share cash offer is $0.50 higher than SAP's.

Is a bidding war in the offing? "We don't want tobut] anything is possible," says Phillips, who spoke with BusinessWeek Online Technology Editor Jim Kerstetter on Mar. 9 about the Retek offer and the simmering feud with SAP. Here are edited excerpts from their conversation:

Q: Have you heard back from Retek yet?

A: We talked to them today, yes.

Q: What did they say?

A: I can't get into detail, but I can say they are evaluating things...their motivation is to get the highest price they can get. It's a cash deal. So they've put the company in what is called "Revlon mode."

Q: Revlon mode?

A: That's a key court case that said once you have decided you're auctioning off a company, you have to open it up to the highest bidder, by law. So they are at that stage, since it's a cash offer and they're selling their company and hanging up their cleats. I don't think they have any preference other than who has the highest offer.

Q: Are you worried about getting into a bidding war?

A: No one wants to get into a bidding war, so we don't want to. But is it a possibility? Well, anything is possible. We'll have to see how SAP responds.

Q: SAP has certainly become enemy No. 1 for Oracle.

A: Yeah, well, we always need an enemy.

Q: Two months ago, they acquired TomorrowNow, that little company that specialized in essentially poaching PeopleSoft maintenance contracts. So is this payback?

A: The whole TomorrowNow thing is just advertising. All it's going to get for them is a little publicity. There's no substance to it. They have just 30 employees. I'm not sure it's going to change the industry. Third-party maintenance options have been around forever, but no one uses them? SAP knows that, but it makes good headlines for them.

Q: I noticed yesterday that Larry Ellison repeatedly called SAP "sap" in the conference call.

A: Very perceptive.

Q: Was that intentional.

A: Yes.

Q: Why so?

A: He likes calling them "sap."

Q: I never really heard that from him before.

A: You'll hear more. It sounds better, at least from our perspective.

Q: It's diminutive.

A: Right.

Q: You just closed PeopleSoft two months ago. Are you worried Retek puts too many balls in the air for Oracle's acquisition team?

A: No. We have a ton of investment bankers from Wall Street running around here. We have plenty of people who know how to do deals. That's not the issue. The real question is whether the field is ready. But the sales organization has already been updated with the PeopleSoft reps we picked up, so it's business as usual. And I've never met a salesperson who said they didn't want more products to sell. So they're ready.

Q: Larry Ellison also said this shouldn't stop Oracle from making other acquisitions over the coming year. What kinds of companies will you be looking at -- other applications companies or infrastructure software companies?

A: Both. We will look at both and there are plenty of candidates out there and plenty of companies that want to be bought by Oracle.

Q: This doesn't appear to be a hostile bid. So what's the biggest difference between your Retek bid and the PeopleSoft fight, besides the lack of hostility?

A: The products are completely incremental. We don't have any of these products. There's no overlap at all. They developed some things we were thinking of developing but hadn't gotten around to, and we looked at it and said, "This will take us five years to write this." They've been a key partner of ours. We've been selling with them in retail markets for years, so why waste five years building these applications?

Q: You said in the conference call on Mar. 8 that you started looking at Retek as early as September. Why?

A: We had done a fairly extensive analysis on our applications strategy...specifically, how we were going to pass SAP. So Stage One was the PeopleSoft acquisition. Stage Two was to surround them, we called it the "Surround strategy," by going into the line of business applications, because those are of high value to the customers. So if you can win those, you can often replace [other] applications, because they often want it all integrated from one vendor.

Q: Retailers seem to be one of the few businesses that haven't moved en masse to packaged applications like yours or SAP's.

A: There's good reason for that. There weren't very good packaged applications for them to move to. And only very recently have these companies??eveloped real packaged applications. The mentality of retailers has also changed. There is so much pressure now, there are so many changes in the technology and the business, so they can't keep up. They're looking for some help. I can't tell you how many retailers I've met with who have asked me, "Will you please buy one of these guys?"

Q: How large is this market?

A: If you look at just the software part of it, it's moderate. But the bulk of the revenue is in custom applications, so it's people. That's what you want to replace with packaged applications over time.


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