The deal calls for Oracle to acquire PeopleSoft for 26.50 dollars per share, ending one of the most bitter takeover fights in Silicon Valley and giving a big victory to Oracle founder Larry Ellison, one of the world's richest men.

The transaction was approved by the boards of directors of both companies and should close by early January, the firms said in statements.

Oracle, which calls itself "the world's largest enterprise software company," wanted PeopleSoft to compete against Germany's SAP in the high-end integrated human resource and financial management software used by big companies and government agencies.

Ellison unveiled the surprise early Monday when lawyers for both groups were due to appear in court in Delaware, as Oracle battled to knock down legal and financial obstacles thrown up by a hostile PeopleSoft board.

"This merger works because we will have more customers, which increases our ability to invest more in applications development and support," Ellison, Oracle's chief executive, said in a statement.

"After careful consideration, we believe this revised offer provides good value for PeopleSoft stockholders and represents a substantial increase in value from October," said George "Skip" Battle, chair of a PeopleSoft board committee in charge of evaluating the merger.

PeopleSoft's board rejected Oracle's initial purchase offer in June 2003 as insufficient, leading to a fierce war for control of the firm.

But on November 20, Oracle announced it had obtained control of more than 60 percent of PeopleSoft's shares.

Again, PeopleSoft's board said the offer, then at 24 dollars a share, was not enough.

The offer of 26.50 dollars, the best ever made by Ellison, expires December 28 at midnight (0500 GMT December 29).

Oracle shares rallied 1.35 dollars, or more than 10 percent, to 14.63, while PeopleSoft surged 2.47 or 10.3 percent to 26.42.

Minutes before the announcement Oracle indicated that it had raked in net profits of more than 32 percent in the second quarter of the 2004/2005 fiscal year, of 815 million dollars.

In its statement Oracle moved to reassure clients of PeopleSoft and JD Edwards, a firm PeopleSoft recently bought, saying not only would it continue to support both company's products, but it also would continue to develop them in new versions.

The takeover saga included a number of courtroom fights and legal maneuvers.

One key to the deal was a failed effort by the US Justice Department to block the deal on antitrust grounds.

This had been one element of the PeopleSoft defense, but a federal judge ruled in September that the deal would not pose a monopoly threat, and the US government dropped its objections shortly afterward.

The European Commission followed suit on October 26, saying it would not block the deal either.

During the litigation, it emerged that Microsoft had entertained plans to acquire German firm SAP.

The two firms had sued each other and PeopleSoft had adopted a so-called "poison pill" making a takeover effort more difficult, with a court hearing on that matter set to go forward this week.

Analysts said Oracle must heal the rift over the battle and reassure PeopleSoft customers to keep them from switching.

"The bitter, and very public, 18-month battle has taken a toll on Oracle and PeopleSoft, creating much animosity within the companies and the PeopleSoft customer base and partner community," said AMR Research analyst Jim Shepherd.

"Oracle will need to work hard to heal those wounds and perhaps improve its public image. Oracle's strategy (and financial results) demand that the PeopleSoft customers keep renewing their maintenance contracts and continue to invest in deploying and upgrading their applications."

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