• SYS-CON Live Coverage of PeopleSoft
• SYS-CON Live Coverage of Oracle
• Ellison Announces "There Will Be Job Losses"
• Oracle-PeopleSoft: Stress in Silicon Valley

It agreed Monday that the company should be sold to Oracle for $26.50 a share, roughly $10.3 billion, $1.5 billion more than Oracle's now-famous "best and final" offer.

Oracle attributed the sweetener to the discovery that PeopleSoft's maintenance business is more profitable than it thought based on publicly available information.

Oracle said it got the deeper insight during the negotiations with PeopleSoft that it finally had over the weekend, their first talks in the 18 months that Oracle has been pursuing PeopleSoft. Oracle said it was approached by PeopleSoft to negotiate.

They came to a definite agreement Sunday night, hours before PeopleSoft was supposed to show up in Delaware Chancery Court on Monday to explain what was wrong with Oracle's previous $24-a-share bid.

Ellison said there was value in spending the extra money to do a "friendly deal," avoiding both the Delaware court and the California Superior Court where PeopleSoft was suing Oracle for a billion dollar for damaging its business. It also saves a nasty proxy fight next year.

Oracle said it now expects the deal to close by December 31. Its tender offer will expire at midnight on December 28.

The sweetener lets the PeopleSoft board retire the field with dignity. It always claimed that Oracle was underpricing the company.

Oracle's highest offer during the last year and a half was $26 a share, an offer it withdrew and reduced to $24 a share when PeopleSoft's numbers didn't hit the mark.

The sweetener is something of a wash-through since PeopleSoft has $1.7 billion in the bank.

Oracle co-president Chuck Phillips hailed the merger as a "turning point in enterprise applications" because it will mean that Oracle will support non-Oracle databases for the first time in its history.

Apparently Oracle intends to pursue the alliance PeopleSoft struck recently with IBM.

Thinking of SAP, the big kahuna in the field, Oracle CEO Larry Ellison said the deal would double Oracle's customer base and make it the largest applications seller in North America with strength in specific markets like retail banking, government and healthcare.

The merger is supposed to trim $150 million-$200 million off the companies' combined R&D budgets and give Oracle 50% more dedicated applications salespeople. G&A and marketing costs will be unaffected, Ellison said.

Ellison, who had initially threatened to pull the plug on PeopleSoft's software once Oracle got it hands on PeopleSoft, said the PeopleSoft development team would be kept separate from Oracle's and that the anticipated next-generation PeopleSoft 9 and JD Edwards 5 would be commercialized.

Senior designers from both PeopleSoft and Oracle, he said, will be set to developing a merged Oracle-PeopleSoft product that might appear in 30-36 months, but Oracle may also develop a PeopleSoft 10 and even a JDE 6, something PeopleSoft may not have done.

Ellison was forced to change his tune by the negative reaction of PeopleSoft's customers to his intentions.

Oracle has been pressuring PeopleSoft, whose stock price was expected to sink if Oracle abandoned its pursuit, by saying that it was in negotiations with other merger candidates.

Ellison this morning said Oracle would not consider any other large purchases until it had integrated PeopleSoft. Oracle has no experience with significant acquisitions.

Oracle expects to defray the debt it's going into to buy PeopleSoft in two years. It said it thought the acquisition would be one cent accretive in the June quarter and about two cents a quarter or eight cents a year in FY06, and a bit more in FY07. Ellison said the forecast was conservative.

The merger announcement came this morning when Oracle posted its earnings. After a poor showing last quarter, Oracle application sales were up 57%. Phillips attributed the improvement to strategic projects coming to fruition.

Oracle reported earnings of $815 million, or 16 cents per share, in its fiscal second quarter on revenues of $2.76 billion.

Revenues grew 10% over the corresponding quarter last year while net income was up 32%.

Oracle said new software licenses, a key metric in the business, grew 14% to $971 million driven by increase in new application sales. Software license updates and product support revenues rose 12% to $1.25 billion. Services revenues were essentially flat at $533 million.

Although Oracle's application business in the second quarter bounced back from a poor showing in Q1 when new application sales fell 36% year-over-year to $69 million, company executives expressed cautious optimism about its prospects stating that it was driven by strategic projects and long evaluation cycles.

New application software license revenues amounted to $215 million in the quarter. Total application related revenues including software updates, support and services amounted to $685 million compared to $497 million in the previous quarter.

On the database side, the new software licenses growth rate slowed down to 5% compared to 18% in Q1. New database license revenues were $756 million in Q2. Including software updates, support and services, total database technology business revenues were $2.07 billion compared to $1.72 billion in the previous quarter.

Cash and investments at the end of the quarter totaled $9.4 billion.

For the current quarter, Oracle is projecting revenues of $2.7 billion-$2.79 billion, representing year-over-year growth of 8%-11%. The company is forecasting new software license revenues will grow 4%-14% with a "best forecast of 9%." Oracle expects total software license revenues to grow 8%-13%.

"The momentum of the business is strong and we anticipate that we'll benefit from the weakening US dollar," Oracle CFO Harry You said on the call. The company anticipates EPS of 14 cents or 15 cents.