Posted on: Sunday, June 22, 2003
Culture clash complicates software takeover bid
By Anthony Effinger
Bloomberg News Service
Larry Ellison, founder and chief executive of Oracle Corp., is a collector of samurai body armor. Dave Duffield, founder and chairman of PeopleSoft Inc., adopts children — six in all, younger than 10.
Ellison, 58, flies fighter jets and races yachts. Duffield, 62, saves unwanted house pets through Maddie's Fund, a $240 million foundation he set up in memory of a beloved miniature schnauzer.
About the only thing the two have in common is software: Ellison started Oracle in 1977 to sell database programs. Duffield, a former engineer at International Business Machines Corp., founded PeopleSoft in 1987 to process payrolls.
"There couldn't be two people more different than Dave Duffield and Larry Ellison," said Kate Mitchell, who worked for Ellison from 1992 to 1994. She got to know Duffield after that when she was president of Tesseract Corp., which makes software similar to PeopleSoft's.
On June 6, Ellison announced a $5.1 billion hostile bid for PeopleSoft, which is based in Pleasanton, Calif. Duffield and the rest of the board rejected the offer June 12, saying the $16-a-share price was too low and that the purchase wouldn't pass antitrust scrutiny. PeopleSoft sued a day later, alleging that Oracle was interfering with customer contracts and engaging in unfair trade practices.
On Wednesday, Oracle increased its hostile offer for PeopleSoft to $6.3 billion. The new cash bid of $19.50 a share was 22 percent higher than Oracle's first proposal. Ellison's sweetened bid may be enough to sway some PeopleSoft investors to accept his offer.
But analysts say the culture clash between the two companies would make it hard for Ellison to extract what he wants from PeopleSoft.
"You can't imagine two more different cultures," said Erin Kinikin, an analyst at Forrester Research in Santa Clara, Calif. "At PeopleSoft, no one person is greater than the whole. At Oracle it's survival of the fittest."
PeopleSoft is the third company that Duffield has started. He left IBM to found a company that built a payroll system for the University of Rochester. Then he jumped into human resources software with his second company, Integral Systems.
Sitting on a beach in Hawai'i during a retreat for Integral salespeople, Duffield pieced together a plan to write payroll programs for server computers and the PCs that hooked up to them.
The Integral board wouldn't go for it, Duffield said in a December 2000 interview with Bloomberg News. So he and engineering buddy Ken Morris left to start PeopleSoft. He gave up the CEO post in 1999.
Mitchell and others who know Duffield say the prospect of a takeover by Oracle must be torture. He financed PeopleSoft out of his pocket for two years in its early days and ran it according to such tenets as "integrity" and "having fun."
As CEO, Duffield coddled workers. He gave everyone a laptop and twice invited the whole company to spend the weekend at his house on Lake Tahoe, Duffield said in the 2000 interview. He once heard a band playing on the PeopleSoft campus. It sounded terrible, so he bought all of the musicians new instruments.
Ellison pushes his employees not just to win, but to kill their competitors, Mitchell said. "There are few people as brutal about beating the competition," she said.
Should Ellison succeed in buying PeopleSoft, he says that he will keep only the best software developers. That would mean cutting the bulk of PeopleSoft's 8,180 workers loose at a time when the unemployment rate for April reached 8.3 percent in Santa Clara County, the heart of Silicon Valley. The U.S. jobless rate was 6.1 percent in May.
"Dave Duffield cherishes everybody who works for him," said Richard Avanzino, president of Maddie's Fund, which Duffield started in 1999 with $200 million of his own money. "PeopleSoft is his baby."
Duffield rarely talks to the press, and PeopleSoft spokesman Steve Swasey said he wouldn't be available to comment. There's a small chance that Duffield may break his silence and try to rally shareholders to vote against accepting the Oracle bid, said Bruce Richardson, an analyst at AMR Research in Boston, who follows PeopleSoft.
Duffield's appeal would be similar to that of Walter Hewlett, the son of Hewlett-Packard Co. co-founder William Hewlett, Richardson said. Walter traversed the country exhorting shareholders to block CEO Carly Fiorina's bid to acquire Compaq Computer Corp. He failed, and Hewlett-Packard bought Compaq for $18.9 billion in May 2002.
"Duffield can't be comfortable knowing that the heart of his company could be ripped out," Richardson said.
Acrimony aside, Ellison's bid is boosting Duffield's net worth. Duffield is PeopleSoft's second-largest shareholder with 9 percent of the stock, according to filings with the U.S. Securities and Exchange Commission. The value of his stake has risen 12 percent under Oracle's first proposal, to $489 million from $436 million.
PeopleSoft employees have had Oracle scares before.
Many cringed in 1999, when Duffield and the board picked Craig Conway as the new CEO. Conway had spent eight years as a marketer at Oracle, before leaving in 1993 to become CEO at TGV Software Inc., a maker of computer networking software.
Conway has some Ellison-like attributes. He built a 600-square-foot gym in the barn next to his house in Woodside, south of San Francisco. He was in the judo club in college and soaked up Japanese culture like Ellison, who's building a Japanese-style compound not far from Conway in the same town.
When Conway joined PeopleSoft, the comparisons ended. In the 2000 interview, Duffield said he was relieved because Conway shared PeopleSoft's contempt for Oracle.
"He had a similar disdain for Larry Ellison," Duffield said at the time.
Conway lashed out the day Ellison made his offer. He said the bid was designed to derail PeopleSoft's own acquisition plans.
On June 2, PeopleSoft said it had agreed to buy rival J.D. Edwards & Co. for $1.7 billion. The purchase would make PeopleSoft bigger than Oracle in applications software, which businesses use to track sales, process payrolls and organize employee information.
Conway told Bloomberg News that Oracle's bid is ill-intentioned: "It's like me asking if I could buy your dog so I can go out back and shoot it," he said.
An Oracle purchase could benefit one constituency that Duffield adores: stray dogs and cats. Maddie's Fund owns 4 million shares of PeopleSoft, according to filings with the SEC. The shares' value has risen, thanks to Larry Ellison.
