Oracle's new target

Oracle chairman and chief executive Larry Ellison said the offer had been triggered by Peoplesoft's $1.6bn bid for software firm JD Edwards on Monday.

Oracle said it would make a cash offer of $16 per share, but news of the bid caused Peoplesoft's share price to jump 18% to $17.82. Oracle's share price closed down 2% at $13.09.

Peoplesoft described Oracle's bid as "atrociously bad behaviour". It said it would review the offer and advised shareholders to take no immediate action.

Analysts said the fact that Peoplesoft's share price had risen above the offer price indicated that investors thought Oracle would have to come back with a higher bid, or that another company could make an offer.

'Smart move'

"The acquisition of Peoplesoft will immediately make Oracle an even more profitable and competitive company," said Oracle's chairman and chief executive Larry Ellison.

The firm said Mr Ellison had written a letter to Peoplesoft asking to discuss the offer. The company will begin its formal bid on Monday.

We believe our offer presents compelling value to Peoplesoft shareholders Jeff Henley, Oracle executive vice president

Oracle is the world's largest maker of database software, which is used to store and organise business data.

However, the firm is seen as weaker in the market for business software applications which run areas such as human resources and manufacturing.

"The only way that Oracle's going to be a player in applications is to buy someone," said Bruce Richardson, an analyst with software research firm AMR Research.

"I think it's a smart move. It's just surprising because Oracle has never done anything like this on such a large scale."

Cost savings

"Given Peoplesoft's current prospects and plans, we believe our offer presents compelling value to Peoplesoft shareholders," said Oracle executive vice president Jeff Henley.

"In addition, we expect that the acquisition of Peoplesoft will increase Oracle's earnings per share from the first combined quarter.

"We expect there to be substantial cost savings and minimal business integration risk."

But Peoplesoft said Oracle's bid proved that its $1.6bn bid for software rival JD Edwards made sense.

"If anyone needed any further validation of the strength of the JD Edwards acquisition, we heard it today from Oracle," said Peoplesoft chief executive Craig Conway in a statement.

Oracle said it would review whether to support the purchase of JD Edwards if its own bid for Peoplesoft was successful.

German rival

Analysts said a takeover of Peoplesoft by Oracle would create a powerful rival to the market leader in enterprise software, Germany's SAP.

But the German firm said it was not worried by the prospect its new competitor.

"We are undisputed market leader, should the takeover work, then there is a clear number two in the market," a SAP spokesman said.