Oracle Rejected Again by Board of PeopleSoft
The board of PeopleSoft Inc. spurned database giant Oracle Corp.’s hostile takeover bid again Friday, saying that even at $6.3 billion it was inadequate and that antitrust regulators would nix the deal in any case.
“Oracle’s offer undervalues the company,” said Craig Conway, chief executive of Pleasanton, Calif.-based PeopleSoft. “It is highly conditional, faces significant regulatory delays and uncertainty and threatens serious damage to our business.”
In Securities and Exchange Commission filings Friday, PeopleSoft revealed that its board had cleared the way for talks with a white-knight bidder to challenge Oracle.
The filings said the board “determined that future circumstances might make it advisable or necessary for the company to engage in discussions or negotiations with third parties regarding extraordinary transactions,” such as a proposed sale or merger.
A PeopleSoft spokesman declined to elaborate.
Oracle Chief Executive Larry Ellison decried what he called “scare tactics” on the part of PeopleSoft.
“PeopleSoft executives are traveling around telling customers that we will kill PeopleSoft’s products and force them to move to Oracle’s applications,” Ellison said in a statement directed at PeopleSoft’s 5,000 clients. “These are lies.”
Ellison vowed that Oracle would continue to support PeopleSoft products for at least 10 years if it succeeded in buying the company, which makes software that large organizations use to manage such things as inventory and human resources.
In launching his surprise campaign to buy PeopleSoft two weeks ago, Ellison said he would cease development of new PeopleSoft products but would continue to support its existing users. Indeed, ongoing customer support is a lucrative business for PeopleSoft, which takes in $800 million a year -- about 40% of its revenue -- for such services.
Analysts and PeopleSoft executives had speculated that Oracle’s true aim in biding for PeopleSoft was to foil its planned merger with smaller rival J.D. Edwards & Co., which is set to close July 27.
Ellison denied such motives.
“We would not offer more than $6 billion in cash unless we really wanted you to be our customers,” Ellison said in his statement Friday. The deal values PeopleSoft at $19.50 a share.
Oracle had initially offered $5.1 billion, or $16 a share, but PeopleSoft’s board urged shareholders to reject that offer Monday. Redwood City, Calif.-based Oracle sweetened its offer Wednesday after some of PeopleSoft’s largest shareholders said it would take more cash to win them over.
Analysts said that although the latest offer proved Oracle’s sincerity, it was still insufficient to sway PeopleSoft shareholders to abandon the company’s merger with J.D. Edwards in favor of a combination with Oracle.
“We’re not surprised that PeopleSoft’s board rejected the second offer,” said David Hilal, a managing partner with the Arlington, Va., investment firm Friedman, Billings & Ramsey Co. “While $19.50 gets shareholders’ attention, it’s not enough to tip the scale. We believe $21 to $22 would make it more likely.”
Like many public companies, PeopleSoft has a so-called poison pill to defend against hostile takeovers. The measure, instituted years ago, snaps into effect when an unwelcome buyer acquires 20% or more of the company’s shares.
At that point, executives are allowed to issue millions of shares to all other stockholders, thereby making a takeover prohibitively expensive and diluting the hostile buyer’s ownership into oblivion. Oracle has sued PeopleSoft in Delaware Chancery Court to force it to disable its poison pill.
The high-profile battle has taken its toll on PeopleSoft, which has labored to conduct business as usual and reassure clients who may be rattled by a potential takeover.
Gartner Research, a technology research firm based in Stamford, Conn., last week advised clients to hold off on any large software buys until the dust settles.
The timing couldn’t be worse for PeopleSoft, which is closing its second quarter at the end of the month.
With many orders on hold, PeopleSoft executives may be forced to pre-announce its earnings next week to warn shareholders of potential revenue shortfalls, said Betsy Burton, Gartner’s vice president of research.
PeopleSoft shares fell 19 cents to $17.42 on Friday, while Oracle shares shed 41 cents to $12.93. Both trade on Nasdaq.
Reuters was used in compiling this report.
