Oracle's proposed takeover of PeopleSoft is a survival move, says Ellison

Oracle wants to buy PeopleSoft to survive in a consolidating and increasingly competitive business applications market, Oracle's...

Oracle wants to buy PeopleSoft to survive in a consolidating and increasingly competitive business applications market, Oracle's chief executive officer Larry Ellison testified in the US government's case to block the proposed $7.7bn merger.

"There was a lot of consolidation going on around us and we wanted to be a survivor and a consolidator," Ellison said.

Oracle launched its hostile bid for rival PeopleSoft last June, days after PeopleSoft announced its plan to acquire JD Edwards.

The US Department of Justice (DOJ) in February sued to block Oracle's merger plan, arguing it is anticompetitive as it would lead to price increases and limit customer choice to SAP and Oracle in the market for high-end financial management and human resource applications for large and complex enterprises.

Under increasing competition from SAP and with Microsoft seen entering the market, Oracle needs to improve its products and at the same time lower its prices to compete successfully, Ellison said.

"The only way we can increase our investment in engineering and at the same time lower our price is to increase our installed base," Ellison said. "If we wanted to grow, if we wanted to compete effectively, we had to acquire."

PeopleSoft has been fighting Oracle's offer, even though the company initiated merger talks with Oracle in 2002. At that time, Oracle and PeopleSoft could not reach an agreement on the structure of the combined businesses.

Even though Microsoft has denied plans to sells business applications software to large enterprise, Ellison is convinced the software company will be a major player.

"I don't think Microsoft is going to be able to monopolise the business applications market... I think it is going to be like the database market, where they gain share and gain share and ultimately become a formidable competitor," Ellison said.

If the PeopleSoft deal were to go through, Oracle has promised to support PeopleSoft customers for at least the next 10 years and offer Oracle applications and the Oracle database at no charge.

Oracle will not sell PeopleSoft products and will work to create an integrated successor product.

"The intention is to build successor products that integrate the functionality of both the Oracle and PeopleSoft products and make it easy for the customers to upgrade," Ellison said.

Joris Evers writes for IDG News Service

Read more on IT legislation and regulation