News Analysis: Why Larry?s Apple sauce makes Gil ill

Ellison?s plans to launch a hostile takeover bid for the vendor spell big trouble for Amelio

If someone is not doing a good job, then the only way to get rid of them is to buy them out. This is precisely what Oracle CEO Larry Ellison has decided to do, as he confirmed rumours of a $1.25 billion hostile takeover of ailing vendor Apple. In so doing, he served notice on Apple CEO Gil Amelio that his days were numbered.

Ellison?s declaration of hostilities was the last thing Amelio needed to hear as he prepared for a make-or-break showdown with one of Apple?s largest institutional investors, the California Public Employees? Retire- ment System (Calpers) ? a $108 billion pension fund which controls 709,000 Apple shares. It was fiercely critical of Amelio?s handling of the company, branding it as the worst performer in corporate America.

Amelio attempted to shrug off Ellison?s announcement, claiming it was a ploy to drive down Apple?s share price (in which case it backfired on Ellison, since the stock actually went up by 11 per cent on the day) and that a takeover would hurt Apple?s recovery.

Amelio insisted that he will not be diverted from his chosen strategy. ?I just cannot let this be a big distraction,? he said. ?I will not get into a mode of reacting to Larry Ellison. I see my job as keeping my nose to the grindstone and not devoting any energy to this thing.?

But behind the scenes, Amelio is known to have set Apple?s attorneys on red alert to fend off any hostile bid. The firm has a shareholder rights plan which can act as a poison pill by offering new shares to existing shareholders at half the current market value, thus diluting the outstanding stock.

Initial reaction in Silicon Valley and on Wall Street to Ellison?s statement was one of resigned familiarity. This is not the first time the Oracle boss has made such sabre-rattling statements of intent. The idea of an Ellison-inspired Apple takeover was first voiced in 1995, just before Amelio was appointed, when a joint bid by Ellison and ousted Apple co-founder Steve Jobs came close to fruition.

That bid collapsed when Jobs ? described by Ellison as ?my best friend? ? pulled out at the last minute to concentrate on his Pixar startup. But as recently as last month, Ellison was telling everyone that he was ready to bankroll a takeover as soon as he got the go-ahead from Jobs ? comments he later acknowledged had embarrassed Jobs who had returned to Apple as a consultant.

Piling the public pressure on Amelio and his fellow board members, Ellison has set up an electronic questionnaire on the Oracle corporate server to lobby support from shareholders. But any notions that Ellison?s threats could be dismissed as aggressive PR or mischief-making were dispelled with the purchase of two massive batches of Apple stock ? a total of 3.3 million shares worth over $40 billion ? in the hours following his statements. The identity of the buyer or buyers is unknown, although an Oracle representative said he knew of no trading on Ellison?s part.

The timing of Ellison?s latest announcement is clearly linked to a long-awaited meeting between Apple bosses and representatives of Calpers. The fund has already taken action against Amelio and his people ? in February, Calpers voted against Apple?s board of directors at its shareholders? meeting. A Calpers representative declined to comment on whether the fund would support Ellison?s plans, but he admitted it was intrigued by what Ellison proposed. ?We are really focused right now on Apple?s performance.?

An Ellison-led takeover will mean the end for the Apple management team, headed by Amelio and chairman Mike Markkula. ?Apple is in desperate need of all-new management and leadership,? said Ellison. ?Markkula has taken 10 years to destroy what Steve Jobs created.? But he said he would not head Apple himself, but would hold an executive position on the board along with Jobs.

So far, Jobs is keeping a low profile and distancing himself from Ellison. ?The whole thing is bizarre. Larry brings this up now and then. I try to explain my role at Apple is as an adviser. I don?t know about this takeover bid,? he insisted ? although according to Ellison, Jobs was told of his intentions on a recent hiking trip.

For his part, Amelio seems to believe that Jobs is still on his side. ?He has told me on several occasions when this sort of rumour has surfaced that there is nothing going on, and I believe him,? he said.

But there can be little doubt that an Ellison-inspired Apple would be more compatible with Jobs? vision than one led by Amelio. Ellison himself has said he would only be interested in acquiring Apple if his ?best friend? was part of the package. There is no reason to assume that his position has changed.

For Ellison, the attractions of controlling Apple are clear. Despite the disasters of recent years, there is still mileage in the Apple brand, with its traditional values of easy-to-use technology fitting neatly alongside his personal crusade for the network computer concept.

There is little that Amelio and his management team can do but play a waiting game. They have already taken action to restore the company?s profitability and credibility, but losses for this quarter will be up to $250 million, and Amelio will have to ride out the shareholder reaction to those figures.

Ellison has pledged that he will decide within two weeks whether to pursue the takeover, but for the moment his intentions can only be gauged from his rhetoric. For Amelio and his team, it will be a long fortnight.