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PeopleSoft CEO fires backCraig Conway has his say on Oracle, the takeover fight
By David Kirkpatrick
(FORTUNE.COM) -- In pushing his hostile takeover bid for PeopleSoft, Oracle CEO Larry Ellison has clotted up the airwaves and newspaper pages with braggadocio, bombast, and animosity. A notable and shocking example from early July: "If Craigee [Conway, PeopleSoft's CEO] and Bear [supposedly Conway's dog] were standing next to each other and I had one bullet, trust me, it wouldn't be for the dog." I'm pleased to report that I spent a half hour on the phone with Craig Conway late last week, and he gives almost as well as he gets. (I also got a good dose of Conway's strong opinions in an interview I did in May 2002.) Or at least I think I'm pleased. In any case it makes damn good copy, so I'm going to serve it up to you right here. Conway was in a great mood last week because moments earlier he had finished a triumphant quarterly earnings call where just about every company number was up, contrary to the fears of many observers (including me) that the looming Oracle offer would scare customers and stall sales. Not only that, but the company's tender offer for J.D. Edwards was expiring in mere hours, and it was clear that the deal was done. Conway had barely spoken to the press in recent weeks. But the CEO, who worked at Oracle for many years, had plenty to say: "Almost from the moment you start working [at Oracle] you learn never to let the truth get in the way of a good marketing campaign or a strong proclamation. It's uncanny how quickly you get corrupted into that ends-justify-the-means mentality. They have an incredible propensity to declare things as fact which just aren't. "They talk about their applications business being stronger [than ours]. Well, it's declined 25 percent annually over the last three years. They talk about their stock being stronger. But their stock price has decreased 65 percent since June of 2000. They say poison pills [financial mechanisms which protect against unwanted corporate takeovers] should be outlawed. Well, they've had a poison pill themselves since 1990. "I was at Oracle back when we adopted the poison pill in 1990, when we had mismanaged the company to the point that it was in danger of going out of business. We were in debt. We had violated our bank covenants. We were in need of a loan, which we got from Nippon Steel. We were vulnerable. And [CFO] Jeff Henley very deliberately and aggressively implemented the poison pill which acted as a defense for Oracle." Conway's points are well taken. He's right about Oracle's applications business, but Oracle's stock has performed considerably better than PeopleSoft's over 1-, 2-, and 5-year intervals. Conway, perhaps predictably, thinks Oracle has harmed itself by its bid, as it got overwhelmed in bad publicity about its aggressive corporate culture and sales methods, and Ellison's harsh statements. "The story that's not been written is that there has never been more harm inflicted on a corporate brand in as short a period of time in the history of business," he asserts. "After all, they do have another business called databases, which is a $6 billion business. Could that be impacted? Could this cause customers to look to IBM or Microsoft [who build the other two top database products]?" But though he used less colorful language, Conway's strongest feelings were reserved for the potential impact of an Oracle takeover on PeopleSoft's customers. He says that even if Oracle were to give new software away for free, the costs of any product transition would be considerable. Just to reimplement an existing application can cost from 35 percent to 100 percent of the price of purchasing the app. "If a particular application has been highly customized it's almost as expensive as a brand new application," Conway says. "Then you go to the people costs," he says. "Ford Motor company, even if they were willing to spend the money, is not willing to devote their IT organization for the next two years to doing that which they just got done doing [installing PeopleSoft apps]." He added another important point: "About 30 percent of our customers run IBM's DB2 database and 25 percent run Microsoft's SQL Server. So more than half our customers don't run on Oracle. This is probably not lost on Oracle. They hope that they can get those customers to migrate not only to Oracle applications but to the Oracle database." He says regulators both at the state and federal level who are looking at the antitrust implications of the deal are examining its impact on the market for databases as well as for applications. He notes that Oracle apps have never run on other databases, and probably couldn't be made to. Conway says that another argument against the merger is its impact on partner companies whose products or services work only with PeopleSoft applications, like companies that offer helpdesk services for users of PeopleSoft's human resources applications. He says there are more than 300 such companies, with "tens of thousands" of employees, that now work with PeopleSoft but not Oracle. I asked Conway what he thought of the role of Oracle's executive vice president, Chuck Phillips, who he knows from Phillips' years as the dean of enterprise-software security analysts at Morgan Stanley. Phillips recently signed on at Oracle, and has been an aggressive advocate of the takeover and defender of Ellison. On him, Conway did not mince words: "What's interesting with Chuck Phillips is how quickly all that honor stuff they taught him in the military went out the door." Conway says he always knew Phillips in the past as ethical, with integrity, and to be "a man of great honor." He goes on: "I continue to be amazed at the situational ethics, and that part of the culture of Oracle continues on. And the Chuck Phillips thing -- it's almost like the corporate equivalent of the Stockholm Syndrome." For all his bitterness, Conway says he does not believe that Oracle will end up taking over PeopleSoft: "We've never considered or thought we really needed a white knight. We're a very strong, powerful company and the end result is really assured." This battle -- of dollars and words -- is by no means over. David Kirkpatrick is senior editor for Internet and technology for FORTUNE. Questions? Comments? E-mail them to dkirkpatrick@fortunemail.com.
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