While announcing its merger with PeopleSoft, Oracle reports a 57 percent increase in its applications business. Any debt Oracle acquires through the purchase will be repaid in two years, its chief financial officer says.

In stealth mode Monday morning, Oracle announced its second-quarter earnings a little early. The company, which hosted a conference call with media and analysts at 4 a.m. Pacific time, reported a 57 percent increase in its applications business, up from a 36 percent decrease last quarter. That success, however, was eclipsed by even bigger news.

Just prior to its earnings call, Oracle Corp. announced a definitive merger agreement with PeopleSoft Inc.

The two companies coming together ends an 18-month-long hostile takeover battle Oracle waged to acquire PeopleSoft. And the acquisition didn't come cheap. At $10.3 billion, or $24 per share, Oracle wound up paying $8 per share over its initial asking price of $16, lobbed in June 2003.

After getting a firsthand look at PeopleSoft's financials over the weekend, Oracle CEO Larry Ellison said the company is in a better position than Oracle initially thought, with higher earnings and less expenditures.

The acquisition news comes on the heels of a strong second quarter for Oracle, particularly in the applications arena—where Oracle worked desperately to strengthen itself with the acquisition of PeopleSoft.

Resource Library:

Oracle reported a 14 percent increase in second-quarter software license sales, up from $855 million in the same quarter in 2003 to $971 million this past quarter. Software revenues increased 13 percent, from $1.96 billion in the year-ago quarter to $2.23 billion this quarter.

The company reported a net income of $815 million, a 32 percent increase over the year-ago quarter, and a 10 percent increase in total revenues to $2.76 billion.

Oracle chief financial officer Harry You said any debt Oracle acquires through the PeopleSoft acquisition will be repaid in two years.

Wall Street is giving the thumbs-up to the Oracle-PeopleSoft merger. Click here to read more.

Oracle, which expects the deal to close Dec. 31, has planned a Jan. 26 analyst day event in New York to provide detailed financial parameters on the acquisition, according to You.

In terms of future guidance, Oracle anticipates that new software license sales will grow from between 4 percent and 14 percent, with an increase in total software revenues between 8 percent and 13 percent over the third fiscal quarter.

"Nine percent growth [overall] is our best forecast," You said. "In the near term, we expect a global economy that will continue to improve. Sarbanes-Oxley compliance, rising oil prices and rising interest rates may have a negative impact."

Uncharacteristically subdued, Oracle's Ellison also provided some color on the PeopleSoft deal going forward, detailing an anticipated $150 million reduction in Research and Development that will be split "close enough to equal" between Oracle and PeopleSoft, and a 50 percent increase in Oracle's worldwide applications sales force.

Ellison also talked about future product direction—a source of some consternation during the battle as many PeopleSoft customers and analysts believed Oracle would cease support of PeopleSoft's products once it acquired the company.

"We are going to keep PeopleSoft and J.D. Edwards development teams separate from Oracle development teams for some time to come," Ellison said. "They will be working on product enhancements and developing new versions of PeopleSoft 8 and J.D. Edwards 5."

Ellison said Oracle would gather senior software designers from Oracle, PeopleSoft and J.D. Edwards to design a next-generation suite that merges the features of all three product suites.

"PeopleSoft customers should expect an upgrade from [Enterprise] 8 to 9 before they entertain the idea of moving to a merged product," Ellison said.

PeopleSoft acquired J.D. Edwards & Co. in June 2003—a move that sparked Oracle's initial tender offer.

Ever on the acquisition path, Ellison also said the company would not consider purchasing any additional companies priced at more than $100 million until it is clear that Oracle and PeopleSoft have been successfully integrated.

Check out eWEEK.com's for the latest news, reviews and analysis about productivity and business solutions.

Discuss Oracle Earnings Show Soaring Apps Business   >>> Be the FIRST to comment on this article!

>>> More Channel News and Analysis Articles          >>> More By Renee Boucher Ferguson