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Judge Wants PeopleSoft To Explain Why It Turned Oracle Down

Observers Think the Delaware Decision Won't Go in Oracle's Favor

During a scheduling hearing yesterday, the judge overseeing Oracle's attempt to overturn PeopleSoft's takeover defenses said he wants to know exactly why PeopleSoft has turned down Oracle's offer again.

See, Oracle raised its bid from $21 a share to $24 after the trial in Delaware Chancery Court, where the companies came closest to doing any real dickering.

Vice-chancellor Leo Strine Jr said he wanted to understand "the reaction of the PeopleSoft board to the unconditional offer and Oracle's application to enjoin the application of the rights plan to that offer."

That will mean additional testimony and perforce push the judicial proceedings in Delaware into December. Strine will hear that testimony along with some more on PeopleSoft's novel customer rebate defense on December 13 and 14.

PeopleSoft's board unanimously rejected Oracle's so-called "best and final" $24-a-share offer again as inadequate after PeopleSoft shareholders tendered Oracle 61% of the company's stock Friday night.

In a letter to Oracle CEO Larry Ellison and Oracle chairman Jeff Henley on Saturday afternoon, the board said, "We would be willing to discuss an offer made by Oracle at an appropriate price - but $24 is not that price."

The board said - based on the company's performance and outlook - it wants "materially" more than Oracle's previous $26-a-share offer. There have been rumors that PeopleSoft's dream number is $35 a share.

Skip Battle, one of PeopleSoft's outside directors and the head of the Transaction Committee the board set up to deal with Oracle, told Ellison and Henley that "If Oracle is prepared to offer an appropriate price that reflects both PeopleSoft's intrinsic value and our value to Oracle, please contact me directly."

Oracle didn't bite.


 Vice Chancellor Leo E. Strine Jr. (left) returning to the Delaware Chancery Court after lunch
(Wilmington, Delaware, October 6, 2004)  Photo Copyright: SYS-CON Media

It has to hang tough, observers say, or risk looking like it can be had to other potential acquisitions. It may simply walk away, a move that could shear a third off PeopleSoft's stock price.

The Wall Street Journal claimed that PeopleSoft persuaded some large investors to withdraw the stock they tendered to Oracle before the Friday deadline to reduce Oracle's margin of success and increase the pressure on Oracle to up its bid.

However, Oracle only figured 70% of the company was in play. The other 30% belongs to insiders or retail investors.

In response to the board's rejection, Henley wrote back Sunday evening saying, "We are obviously at an impasse."

He said PeopleSoft was only worth the $21 a share Oracle previously had on the table and that it should think of that extra three bucks as gravy. He said Oracle couldn't understand how the board could think the company could be worth more.

"As many analysts have noted," he wrote, "in February 2004, the company's earnings expectations for FY 2004 were significantly higher than today's outlook for FY 2004 and the same as your new revenue for all of FY 2005."

Henley called PeopleSoft's new FY 2005 guidance "not credible" on Wall Street. "Just as your FY 2004 guidance was manufactured as a basis to oppose our previous offers - and was, in fact, not achieved - your new guidance is equally not credible and appears to be little more than an attempt to justify opposing our current offer."

Contrary to PeopleSoft's claim that the "majority" of its largest stockholders, including folks who tendered their shares to Oracle, felt Oracle was undervaluing the company, Henley observed that it looks like a third of PeopleSoft's stock was sold off in the days leading up to Oracle's Friday deadline at prices ranging between $22.50 and $23, "materially below $24 per share."

Henley claimed the tender results constituted a mandate and asked the PeopleSoft board to drop its poison pill before the Chancery Court in Delaware makes a decision and avoid a protracted proxy fight.

Observers think the Delaware decision won't go in Oracle's favor, catapulting the situation, if Oracle sticks to its guns, into a fight for control of PeopleSoft's board at the company's next annual meeting this spring.

On the other hand, the judge could theoretically get the sides to negotiate.

Oracle can take comfort from the fact that Wednesday Vice-Chancellor Strine refused PeopleSoft's request to delay taking new evidence in the case until next year when its annual meeting, set for the spring, is in sight in case this thing escalates into a proxy fight

PeopleSoft also wanted him to hold off taking new evidence on the customer rebate scheme so it could close critical fourth-quarter deals without the possibility of a court ruling inserting uncertainty into the negotiations.

Of course there's no indication when he might rule.

Oracle can't actually acquire the tendered shares without triggering the poison pill, which would flood the market with new PeopleSoft shares.

Oracle is supposed to have its slate of alternate directors nominated by Thursday. Meanwhile, it has extended the tender offer yet again to December 31.

Prudential thinks Oracle's going to win in the end but warns that "Oracle has never done an acquisition this large, and it will surely face significant hidden costs that are not embedded in even the most conservative forecasts."

  • SYS-CON Live Coverage of PeopleSoft - via Google News
  • SYS-CON Live Coverage of Oracle - via Google News
  • More Stories By Maureen O'Gara

    Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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    Most Recent Comments
    reasonchurch 12/03/04 06:53:56 AM EST

    Oracle has this all locked up. Why are they talking to other companies like BEA about mergers? I can't imagine Oracle walking away from PeopleSoft now after everything it has been through.

    Becaus eit might be easier (cheaper) to acquire another company, both in fees and purchase price. Maybe Oracle could have more cash leftover after acquiring a smaller company.

    duffer411 12/03/04 06:38:02 AM EST

    Oracle has this all locked up. Why are they talking to other companies like BEA about mergers? I can't imagine Oracle walking away from PeopleSoft now after everything it has been through.

    scion_redux 11/25/04 06:34:10 AM EST

    If you replaced the word "lots" with "some" and the word "many" with the word "some" you'd be right. Also keep in mind that for years JDE had a minimum seat licensing requirement which exceeded "just a few."

    To take such a strong stance as yours probably unveils your true colors. A yellow shade of jade.

    For the record, many World clients do NOT migrate to OneWorld because they have that choice due to the old JDE support policies. If there aren't economically justifiable reasons to migrate why undertake the consulting costs? Customers probably ask themselves "if you don't need some of the OneWorld specific apps such as CRM and APS, why bother?"

    fromthegenius 11/25/04 06:33:00 AM EST

    What about JD Edwards? There are about 6000 JDE customers with 3800 or so on World. Lots of small customers with just a few seats. The world customers won't even upgrade to OneWorld and most of the OneWorld Customers regret their purchase decision.

    However, the consulting companies have been posting jobs for JDE (EnterpriseOne) people, so there is still a chance to get out while the gettin' is good.

    In the mean time, the Peoplesoft board can be seen at the stove cooking the books to make their company look good in the near term.

    Jakedog13 11/25/04 06:10:47 AM EST

    True that! The problem for PeopleSoft for the next 3 months is the sign on Oracle's salesmen's foreheads reading "Free Oracle Apps...limited time only".

    alamowes 11/25/04 06:09:55 AM EST

    Ellison and Co. have done a masterful job strategically on this whole thing.

    Oracle has diminished revenue/earnings expectations for their own ERP offering to the point that nobody really cares, so they can basically give it away. At the same time, they've forced PeopleSoft to raise expectations to what most think are unrealistically high levels.

    Now Oracle can use a penetration pricing model to gain market share, simultaneously cutting into PeopleSoft's sales, thus making it unlikely PeopleSoft will be able to hit their numbers, or even come close. Which of course, weakens PeopleSoft's bargaining position in the takeover battle. Sweet...

    wareismymojo 11/25/04 06:06:12 AM EST

    ERP/HR/PR is a commodity and most buyers are in the maintenance phase of the life cycle. Nobody likes buying or implementing this stuff. When forced to, customers will probably purchase Microsoft GreatPlains in 2010. Bill Gates will likely bundle GP ERP (think composite apps too) with the rest of the Office suite. Think of it: fully integrated Excel, Word, e-mail, purchase reqs, and AP invoices. How exciting!!

    rb39256 11/25/04 05:42:15 AM EST

    Most people are not directly impacted by enterprise software vendors. But it's about what's fair in America. If Larry Ellison can not be stopped from destroying competition instead of adequately competing with his competition, then what will stop the same from happening in any other sector?

    I'm ashamed that there are enough greedy "investors" out there willing to dump PeopleSoft and allow the brand to be eliminated.

    tsunami7899 11/25/04 05:40:21 AM EST

    Larry wants PeopleSoft apps and clients, as Oracle databases run a lot of PeopleSoft apps, which sounds like a good reason for consolidation to me. PeopleSoft should recognize that Oracle and PeopleSoft have been doing business with eachother for years and consolidation only makes sense.