Today's biggest story may have been Oracle's agreement to finally purchase PeopleSoft. But the Rock n' Roll Hall of Fame also announced next year's inductees. First up, bluesman Buddy Guy, who reputedly asked Fool editor Reggie Santiago for a date during one of his appearances in Alexandria.

Also to be inducted next March: R&B legends the O'Jays, Percy Sledge, best known for his rendition of "When a Man Loves a Woman," classic rockers The Pretenders, and a little known band from Ireland called U2.

In today's Motley Fool Take:

OracleSoft at Last


Tim Beyers

And so it ends.

This morning, Oracle(Nasdaq: ORCL)announced double-digit gains in sales, net income, and per-share earnings for the second quarter of fiscal 2005, plus a definitive agreement to acquire business software maker PeopleSoft(Nasdaq: PSFT) for $26.50 per share, or $10.3 billion in cash.

That's right, folks. After more than a year of come-ons, rejections, and legal spats, OracleSoft is a reality. Oracle CEO Larry Ellison said in a conference call that he expects the deal to add $0.01 per share in earnings in fiscal 2005 and $0.08 per share in fiscal 2006 on a pro forma basis. PeopleSoft isn't expected to aid the bottom line using generally accepted accounting principles, or GAAP, until sometime in fiscal 2007, or about two years from now.

Oracle's management team explained the 10% increase from the so-called "final" offer of $24 per share in November by saying they were provided with new financial information by PeopleSoft's board of directors over the weekend. The new data, painted as more accurate by Ellison, apparently revealed that PeopleSoft's maintenance and support operations were more profitable than originally expected.

Regardless of the reasons, the deal creates a software powerhouse that appears to already be growing well. After backing out a 4% gain because of favorable currency rates, in its second quarter, Oracle grew sales by 6%, to $2.8 billion, and net income by 23%, to $815 million, over the same period last year. Earnings per share came in at $0.16, 35% higher than last year's $0.12, aided by a four-point boost in operating margin, which rose to 41%.

Mix those stellar results in with PeopleSoft's expectations, and it is no wonder Oracle's shares are up nearly 10% in morning trading.

PeopleSoft expects its fiscal 2005 GAAP earnings to be anywhere from $0.82 to $0.87 per share. Though I've had my doubts that the company could achieve that run rate, or the 12 points in operating margin improvement it has estimated, something in the numbers Ellison saw this past weekend must have convinced him that the projections weren't all that far off. So, figuring PeopleSoft ends fiscal 2004 with $3 billion in sales, OracleSoft could begin life as a $12 billion company. That would make the firm more than 25% larger than its biggest rival in business applications software, SAP AG(NYSE: SAP).

All told, the deal is a major victory for Ellison, who fought off not only a hostile PeopleSoft board but also a hostile Justice Department and a legion of doubters over the past 18 months. Congratulations are clearly in order. But don't party too long, Larry. The hard part is just beginning.

Despite the synergies here, big mergers have a history of failure. Plus, the $10.3 billion price tag for PeopleSoft will likely force Oracle to take on new debt. My guess is at least $2 billion worth. Chief Financial Officer Harry You says the company would aim to pay off any financing it acquires within two years. That's probably doable, but interest paid is still money unavailable for funding integration and growing the overall business.

Then there's the disparity in operating margin between the two companies. PeopleSoft says it's working on creating efficiencies, but even if it makes good on its promise of a 16% operating margin next fiscal year, there's still more than 20 points of difference between the two companies in this key metric. That means deep cost cuts are inevitable.

Don't get me wrong: I'm very much for OracleSoft. But Oracle is paying big to get what it wants. That makes me nervous. Yet I'm encouraged by PeopleSoft's massive maintenance revenue stream, which should have a profound impact on cash flow and, ultimately, the balance sheet. That's really where Foolish investors playing the OracleSoft home game ought to focus their attention as this deal gets done.

For related Foolishness:

Fool contributor Tim Beyers owns shares of Oracle. You can view his Fool profile and other stock holdings here.

Discussion Boards of the Day: Oracle and PeopleSoft

What do you think? Is this deal to buy PeopleSoft is the right deal for Oracle investors? Should PeopleSoft investors be disappointed? What's the next big stock market deal? All this and more at the Oracle and PeopleSoft discussion boards. Only at

IBM Enters 21st Century


Rich Smith

On Thursday, IBM(NYSE: IBM)announced a major shift in how it provides for its employees' retirements. No longer will IBM offer new employees the option of receiving set amounts of pension payments paid regularly when they retire, offering instead a 401(k) pension plan. As 401(k) plans go, IBM's new offering is pretty generous: Employees can contribute up to 6% of their salaries to the plans, with the company matching contributions dollar for dollar. Still, this is a pretty significant shift being made by one of America's business stalwarts.

To steal a phrase from Secretary of Defense Donald Rumsfeld, America continues to transform into a nation of "Old Workers" and "New Workers." In Old Worker America, a social contract existed between employers and employees. The employers promised: "If you give us the best years of your life, show loyalty, work hard, and never leave us for a rival, we will provide for you in your golden years. We'll prudently invest a portion of your compensation on your behalf, and, when you retire, we'll take upon ourselves the risk that we invested wisely, and guarantee you fixed retirement benefits for life."

Employees by and large upheld their end of the deal, but employers -- caught between economic realities and shareholder demands on the one hand and promises made to employees on the other -- began to renege. Employees were laid off. Companies declared bankruptcy and shifted their pension obligations to the government's Pension Benefit Guaranty Corporation (which slashed the benefits). The final straw came when the "New Economy" arrived in the mid-1990s. Their faith in employers' promises destroyed, employees abandoned Old Economy companies in droves to join start-ups in the New Economy. They traded in high salaries and uncertain future pensions at companies such as IBM and General Electric(NYSE: GE) for lower salaries, stock options, and 401(k)s at start-ups such as AMZN) and eBay(Nasdaq: EBAY).

Not everyone has made the switch, of course. But as the broken promises pile up at pension-burdened Old Economy employers such as Lucent(NYSE: LU) and legacy airliners such as Delta(NYSE: DAL) and American(NYSE: AMR), the tide is clearly turning. Employees in the 21st century can no longer afford to trust their employers to keep promises about pensions to come. They need to "self-insure" to take control of their financial security. It's a sad truth, but a truth nonetheless.

Fool contributor Rich Smith owns no shares in any company mentioned in this article.

Quote of Note

"There are three kinds of lies: lies, damned lies, and statistics." -- Mark Twain

Apple PayPals Around


Alyce Lomax (TMF Lomax)

Apple (Nasdaq: AAPL) is making its iTunes service a little more user-friendly by teaming up with eBay's(Nasdaq: EBAY) PayPal to facilitate payments. Given the holidays, consumers' possible credit-card burnout, and the large customer bases that use both iTunes and PayPal -- gosh, where's the mistletoe?

Through the deal, announced Friday, the first half-million PayPal members to use the service to purchase music through iTunes before March will get five songs free. Given the fact that one might surmise that a lot of folks might get some freshly gift-wrapped iPods here soon, it seems like a good move for both companies.

eBay has recently touted the statistic that one in three U.S. Internet users has a PayPal account. (The latest total count is 56 million PayPal users worldwide.) Indeed, PayPal has definitely gone further than its roots as a payment method for its parent company's online auctions. Smaller sites that accept PayPal payments have become more prevalent, and PayPal is also available for users to pay bills or send money to anyone with email access.

While PayPal allows users to pay via their credit cards, its real usefulness is that it allows people to use funds directly from their checking accounts or allotted funds. The latter two methods, of course, are the way a Foolish online shopper really wants to conduct Internet commerce, unless he or she is certain of paying off that balance on the monthly credit card statement.

Indeed, PayPal is positioned to benefit from increased consumer attention to the dangers of credit card debt. It's become clear to many that too much credit card use is a trap, and online shopping has probably helped a lot of people venture ever higher toward their credit card limits. (Speaking of spending, if you're looking to pare down your debt, our Credit Center can help.)

In addition, PayPal has marketed itself as a secure vehicle for people who are nervous about sending their credit card information over the wilds of the Internet. (The PayPal name has been used as a common vehicle for high-profile "phishing" scams, although it's by no means alone -- large banks have often had their names hijacked by con artists.)

The deal with PayPal does seem likely to help Apple cull a whole slew of consumers who are accustomed to using PayPal through eBay, and that could add up to a lot of extra love for iTunes. However, in my opinion, the deal also highlights the possibilities for PayPal -- to become a ubiquitous method of online payment offered across Internet sites while helping to transform the Internet from a credit-heavy to a cash-centric society.

Here's more Foolishness about Apple and eBay:

Alyce Lomax does not own shares of any of the companies mentioned.

Will Sprint and Nextel Get Together?


Dave Mock

So much for a quiet holiday.

Mere weeks after the closing of a massive $41 billion merger of Cingular Wireless (owned jointly by SBC Communications and BellSouth) and rival AT&T Wireless, the wireless industry is hot with rumors of the next major deal. This one pairs Sprint PCS(NYSE: FON) with walkie-talkie pioneer Nextel Communications(Nasdaq: NXTL).

On top of this -- only days ago -- two affiliates of Sprint, Alamosa Holdings Inc.(Nasdaq: APCS) and AirGate PCS Inc.(Nasdaq: PCSA), also agreed to merge together.

While the latest rumor is just that, several sources have said the deal is in the advanced stages with approval from the board of directors the only milestone left before announcing the deal. Current speculation is that Sprint will consume Nextel shares in exchange for 1.3 shares of its own plus some cash.

If the reported $36 billion deal goes through, Sprint and Nextel will combine to form an entity offering wireless service to 39 million customers. It will also reduce the major players in the industry from what used to be called the "big six" to just four -- Cingular, Verizon(NYSE: VZ), Sprint/Nextel, and T-Mobile.

While Nextel has been a star stock performer since mid-2002 -- up 500% -- industry analysts have always questioned its future. Nextel's issues with incongruent spectrum and its use of proprietary technology from Motorola(NYSE: MOT) called iDEN has made its upgrade path to next generation services a complex issue.

Yet Nextel holds a very attractive customer base that spends about $70 per user per month, well above other carriers. Its Boost Mobile subsidiary, which targets teens and young adults, is also booming, having just surpassed 1 million subscribers.

The weight-challenged lady may not be singing, though. As if the story were not already compelling, Vodafone may be considering a bid to top Sprint. Vodafone lost AT&T Wireless in the dramatic final moments to Cingular, so if the global carrier does show an interest in Nextel, it will likely pull out all the stops to win this deal, though government approval may be tough to win in this case.

The year 2004 will certainly go down as the year the wireless landscape changed significantly. With the Federal Communications Commission (FCC) reporting recently that consumers in some major markets have seven or more choices for wireless service, the industry has long been ripe for consolidation.

Fool contributor Dave Mock can walkie and talkie at the same time he chews gum. He owns shares of Motorola.

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