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The firing of PeopleSoft Inc. CEO Craig Conway shouldnt derail the $1 billion middleware alliances with IBM that the two companies announced with much fanfare last month, industry analysts said.
But Conways firing—along with the U.S. Department of Justices decision Friday not to appeal a U.S. District Court ruling that Oracles $7.7 billion buyout bid for PeopleSoft does not violate antitrust law—revives the question of whether IBM might be prepared to intervene as a “white knight” to save its business partner from a hostile takeover.
PeopleSoft spokesman Steve Swasey said Conways firing would have no effect on the IBM deal or any other business alliance. PeopleSoft is “going to move forward as planned with all our strategic alliances,” he said.
Analysts discounted the possibility that IBM would step in to take over PeopleSoft by acquiring a majority ownership in the enterprise application software business, based in Pleasanton, Calif.
“The possibility is there that IBM might want to take a minority position in PeopleSoft, just to protect its interest, but not acquire the company outright,” said Paul Hamerman, a vice president of Forrester Research Inc. in Cambridge, Mass.
Nor is there much chance that the $1 billion middleware deal with IBM will be thrown off-course by Conways departure, Hamerman said. Rather, he said he thinks the partnership holds great potential for the future of PeopleSofts technology and its potential survival as an independent company.
“I think the IBM relationship is significant,” Hamerman said, for providing tighter integration between PeopleSoft enterprise applications and IBMs middleware, database platforms, hardware and consulting services.
From an antitrust standpoint, the prospect of IBM acquiring PeopleSoft still looks like it could hold up in court, according to Paul Friedman, an antitrust expert and a partner in the Washington firm Dechert LLP.
“At first blush, there arent any [competition issues] that leap out,” he said. “It depends on what the relationships are that IBM has with other competitors of PeopleSoft.”
But since IBM is prominent in this market as a consultant and systems integrator rather than as a direct applications competitor, any questions about antitrust implications should be easier to resolve than if Oracle were to succeed in taking over PeopleSoft, Friedman said.
Next Page: Scanning for white knights.
White Knights in Waiting
?”> IBM itself has tried to scotch suggestions that it would abandon it long-held policy of staying out of the enterprise applications business by acquiring PeopleSoft or even by making a minority investment in the company.
“We dont have any intention of getting into the applications business,” Buell Duncan, IBMs general manager of ISV and developer relations said in a recent interview with eWEEK.com. “We are in the partnering business” with companies such as PeopleSoft. While the PeopleSoft alliance is notable for its potential scale, it is still one of thousands of business alliances that IBM has engaged in around the globe, he said.
The top computer-system vendors and integrators such as IBM and Hewlett-Packard Co. dont have a fundamental business need to get into the applications business, said Stephen Mader, vice chairman of the executive recruitment firm Christian & Timbers, in New York. “Their own success and mission in life dont depend on it,” he said.
If either IBM or HP were interested in being a white knight, they could have stepped forward before now. “They havent been making a play in that direction. They could have done it a long time ago,” he said. Neither PeopleSofts firing of Conway nor the DOJs decision not to appeal the Oracle antitrust court decision “would stimulate either to change their business strategy,” Mader said.
What might make more sense would be for Computer Associates International Inc. to step in, Mader said, with its history of acquiring companies and its closer alignment with PeopleSofts business. But CA is dealing with its own legal problems and management disarray resulting from an internal and federal investigation of accounting and securities fraud.
Furthermore, CAs former CEO Sanjay Kumar had sold off nearly all of his companys applications business to concentrate on security, as well as data center management technology and services.
That leaves a company such as Unisys Corp., which is primarily a computer systems services organization rather than an application software vendor. However, Mader said that “for Unisys and CA, [an acquisition would] make both stronger, and bring services support and revenue [they] need and want.”
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