San Francisco Chronicle - September 4, 2003

PeopleSoft to reveal plans for integration

Managers must blend their ways with J.D. Edwards

September 04, 2003
By Carrie Kirby, Chronicle Staff Writer

Now that PeopleSoft has successfully acquired all the shares of J.D. Edwards, the real work has begun: Sewing two separate companies into one functional family.

Managers at the Pleasanton firm are expected to give the first word today on how they plan to integrate J.D. Edwards, which, like PeopleSoft, makes software for automating business processes.

At the same time, Oracle's hostile bid to take over PeopleSoft continues in the background. It remains unclear how the consolidation plans between PeopleSoft and J.D. Edwards will be affected if Oracle Chairman and Chief Executive Officer Larry Ellison prevails.

At a conference with analysts in New York today, PeopleSoft is expected to lay out a detailed product road map for the combined company, outline detailed cost savings and give a new earnings estimate for the fourth quarter, which ends Dec. 31.

Merger experts say that whether the merger ultimately benefits shareholders of the new company or leaves them worse off than before rests heavily on the quality of the plan presented today, and its execution.

"The idea behind mergers like this one is that two plus two can add up to five. But it's very common in such mergers for the total to end up being some number less than four," said Ken Gaebler, CEO of Chicago management consulting firm Astute Diligence.

Besides the risks inherent in integrating two companies, the new PeopleSoft still faces the risk that the hostile takeover bid from Oracle will disrupt its business.

Oracle reaffirmed Wednesday that it is still actively pursuing its $6.3 billion bid for PeopleSoft even though the deal is stalled while Oracle waits to hear from the Department of Justice whether it would pose antitrust problems.

"Contrary to statements being made by others, Oracle remains fully committed to this transaction," Oracle Executive Vice President Charles Phillips said during a conference call with PeopleSoft customers.

Phillips and Executive Vice President Michael Rocha answered customer questions during the call, which was meant to reassure the customers that they would receive continuing support for PeopleSoft products if that merger goes through.

PeopleSoft's $1.8 billion acquisition of J.D. Edwards is small compared with Oracle's proposition. But it's major when taken in context of PeopleSoft's size, said Jeff Clarke, a veteran of the biggest megamerger in the tech business -- Compaq and Hewlett-Packard. Clarke, formerly Compaq's chief financial officer, took a leading role in integrating those two firms.

"They'll have to go through the same rigorous processes we had," said Clarke, whose title at the new HP is global vice president.

Craig Conway, PeopleSoft president and chief executive, has consulted Hewlett-Packard CEO Carly Fiorina for merger advice several times, Clarke said.

PeopleSoft and former J.D. Edwards managers have been huddled over the drawing table until today, and that planning phase was the most important period of the entire merger, Clarke said.

"You need to make momentum, have the decisions made so by the time you are legally approved and can operate as a new firm, the people in the field have all the information to act successfully," he said.

Some analysts believe that Oracle's bid pushed PeopleSoft management to be fast and thorough in its integration planning. If the integration falters or doesn't deliver the cost savings management promised, investors could be more likely to accept Oracle's bid, which PeopleSoft management opposes.

"With its survival at stake, PeopleSoft will be under pressure to realize synergies," wrote Banc of America's Robert Austrian in a report issued last week, in which he upgraded PeopleSoft shares to "buy." Austrian does not own shares of PeopleSoft. Banc of America intends to seek banking business from the firm.

To quickly achieve cost savings and better performance, Clarke had the following advice for PeopleSoft, based on HP's experience:

-- Empower high-ranking company executives to carry out the integration instead of leaving the task to outside consultants or low-level employees.

-- Instead of trying to combine internal processes, just pick the best one and make it the standard. "We had over 10,000 decisions we had to make, everything from who would get major management positions, to which products to take forward and which to cancel, to which financial ledger to use," Clarke said.

Instead of studying HP's and Compaq's different financial ledgers and spending months discussing how to integrate the best elements of each, the new HP decided to simply move everyone to the HP ledger and eliminate Compaq's.

"It may be that J.D. Edwards has six or seven processes that they want to move PeopleSoft to because they're better," Clarke said.

Gaebler said PeopleSoft's management team is a solid group of executives, ready to take on the job of integration, but they face huge risks.

"Certainly many good management teams have bungled high-profile mergers," he said.

The biggest danger is that customers become dissatisfied while the integration process is carried out.

"The worst case is a double whammy," Gaebler said. "PeopleSoft customers start to believe that management is distracted by the merger and that enhancements to core PeopleSoft products will languish. At the same time, J.D. Edwards customers start to believe that management is so preoccupied with the core business that support for the J.D. Edwards (software) will be lacking."

Meanwhile, management also has to perform the delicate social task of merging two teams of workers. How many J.D. Edwards employees -- and which executives -- will be part of the new company may be revealed today.