Oracle's stunning $5.1 billion bid for business applications rival PeopleSoft didn't come out of the blue, according to Oracle Chairman and CEO Larry Ellison.

Ellison said PeopleSoft CEO Craig Conway approached him last year about combining the two companies' respective business applications operations into a third company to take on SAP. In a conference call Friday morning, Ellison said he didn't think that arrangement would work structurally. But the idea clearly struck a nerve.

Now Ellison proposes that the combined entity--run by Oracle--would be a formidable competitor. He said the $16-per-share cash bid, made in a letter to PeopleSoft's board Thursday night, would be less risky for PeopleSoft shareholders than PeopleSoft's proposed $1.7 billion stock acquisition of J.D. Edwards, which was unveiled Monday.

If the deal goes through, there's no doubt who'll be in charge, industry analysts said. In a statement released early Friday morning, Oracle said it would "not be actively selling PeopleSoft products to new customers" but would incorporate "the advanced features from the PeopleSoft products into future versions of the Oracle eBusiness Suite."