Oracle acquisition of PeopleSoft rated as one of the top 10 hostile takeovers of the decade

Posted on December 19, 2010


You have to love the oblivious nature of Enterprise Resource Planning “ERP” vendors who seem to operate in a world of their own without much regard for the clients they serve . . . or don’t serve given the high rate of implementation failures.

Take for example Oracle, in which an August 28th, 2009 CIO article titled “Oracle & Bingham McCutchen: Litigating the Competition into Submission Since 2003” made reference to the company’s litigious prowess versus its ability to actually deliver value to its customers.

Specifically, an excerpt from the article by Thomas Wailgum points out the following:

“And with Oracle seemingly going all kinds of paranoid over third-party maintenance providers infringing on their turf and their 90 percent profit margins—most notably SAP’s defunct TomorrowNow subsidiary and now Rimini Street—and lawsuits with no end in site, Bingham McCutchen must be having “money fights” among its senior partners every Friday afternoon. What with all those billable hours from depositions and court filings and contract reviews and discovery procedures just adding up!”

Wailgum then goes on to write, “The Oracle & Bingham McCutchen relationship appears to have been cemented in 2003, in PeopleSoft v. Oracle. Bingham McCutchen’s David Balabanian was instrumental in representing Oracle in its very public and acrimonious acquisition of PeopleSoft. (The case put the H in Hostile Takeover.)”

In short, Oracle is much better at acquiring market share through legal proceedings than organically growing it through customer satisfaction.

This of course is far from being a new industry revelation.  However, when I read an article earlier this evening listing the top ten hostile takeovers of the decade and found that the Oracle acquisition of PeopleSoft had cracked this dubious list I thought that it would be interesting to write about the transaction that inspired everyone from the Harvard Business Review to InfoWorld to proffer their own opinions on the $10.3 billion takeover.  $10.3 billion . . . good thing Oracle, according to the Wailgum article, operates at a 90% profit margin.

But a funny thing happened while researching the background information for this post, in that I discovered that PeopleSoft was not the bullet proof sure thing one assumed that it was prior to the takeover.  In fact, instead of the acquisition creating customer service problems, it appears that PeopleSoft was tainted long before the Redwood Shores, California giant moved in.

For example, going back to the mid-nineties, Cleveland State University “CSU” embarked on a PeopleSoft implementation that had originally been projected to cost $4.2 million but had climbed to more than $15 million.  Plagued by ongoing issues CSU filed a lawsuit for $510 million in 2004 “alleging fraud and breach of contract that the university says led to millions of dollars worth of problems with a campus-wide implementation of management software.”

Challenges with PeopleSoft implementations were not limited to CSU, as similar stories such as the one regarding Denver which according to reports paid $23.4 million for the city’s financial services computer system or 67% over budget, seemed to be the rule rather than the exception. The contentious issue in Denver was that $18 of the $23.4 million went to consultants to train city employees on how to use the system.

Problems with PeopleSoft in Boston also occurred as they did with the San Francisco School District which paid $5 million for a system that initially cost $300,000, and was still not working properly 5 years later.

In Canada, the Province of Alberta also experienced significant challenges when they made the move to implement a PeopleSoft-based purchasing system.  In the end, the Province scrapped the PeopleSoft procurement platform eating what was likely several million dollars.

Given the above track record, and when you consider Oracle’s proficiency in terms of litigation, the 2004 acquisition of PeopleSoft may have been hostile but would appear to have been both prudent and timely.

Now I know why my mother wanted me to become a lawyer!


Posted in: Commentary