Oakland, Calif - The financial and customer retention projections that Oracle presented to its board of directors when it pitched the $11 billion acquisition of PeopleSoft was intentionally conservative - and in the end, the company performed slightly better than it expected.
But during testimony at the Oracle-SAP trial today, Oracle co-president Safra Catz offered a softer-side version of Oracle's position of how that came to be, despite the arrival of a new competitor in SAP. She elaborated on her answers more than Ellison, who took a very straightforward approach to his questioning. She genuinely looked and sounded surprised by some of the questions - not the caught-off-guard type of surprise but more like the "are-you-seriously-asking- that?" type of surprise.
Meeting the projections presented to her board took a lot of extra work - all because of SAP's announced acquisition of TomorrowNow. Oracle "over-communicated" and "over-supported" its customers to keep them from defecting to TomorrowNow when licenses came up for renewal?
Was Oracle worried? Certainly, she said. But the company also was confident that it would still be able to meet its projections by positioning its support offerings as being high in customer value, largely in part because of the intellectual property advantage it maintained to provide customers with software updates, regulatory updates, bug fixes and more.
"It was rather expensive," she said.
At the time, she said, no one had any idea that its intellectual property was being stolen. Had the company known that someone else would come in and offer level of support that would jeopardize the company's ability to retain a large number of PeopleSoft's customers, Oracle never would have paid what it did for PeopleSoft. It needed to retain the majority of those customers in order to recover its costs of the acquisition.
During testimony, lawyers looked at financial models presented not only to Oracle's board, but also to financial analysts during a presentation 60 days after the SAP-TomorrowNow acquisition was announced. One item, in particular, that referenced "No material issues anticipated" was noted by SAP's legal team, implying that if there had been such a large concern about customer losses by a new competitor, isn't that something that should have been noted?
Catz testified that she believed that the efforts to assure customers of Oracle's level of support would keep them from fleeing Oracle when it came time to renew licenses. As for the arrival of SAP and TomorrowNow, she said, "I'd hoped and believed it would not be material." Of the estimated 14,000 customers Oracle obtained from its acquisitions of PeopleSoft and Siebel, only 358 went to TomorrowNow, SAP's lawyers argued.
That's significantly less than Oracle CEO Larry Ellison suggested in earlier testimony.
Had SAP negotiated ahead of time for licensing fees, that would have cost "billions," she said. After all, Oracle had the advantage because they had also obtained the engineers and support staff from PeopleSoft. SAP would have had to start from scratch and work to build what Oracle already had. And what if they had wanted to pay for them over time, she was asked. They would have had to pay up front, she replied.
"We didn't pay for PeopleSoft on layaway," she said.
The defense also asked Catz about the SAP's earlier offer of $40 million as compensation for its actions. Why hasn't the company accepted that offer, Catz was asked.
SAP paying us $40 million is a reward for their bad behavior. This is like taking someone's $2,000 watch and hocking it for $20 and then offering us $20. It's crazy... (It) undervalues the basis of our entire industry. It's all about intellectual property.
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