Oracle Steps Up Bid for PeopleSoft
Oracle Corp. on Wednesday raised its hostile tender offer for rival software maker PeopleSoft Inc. by a third to $26 a share, or $9.4 billion, substantially increasing its chances of winning control of the firm if antitrust regulators decide not to oppose the combination.
The sweetened offer cleared away suspicions that the database software giant was merely trying to disrupt PeopleSoft’s business with an unsolicited offer. It set the stage for the eight-month-long drama to wrap up before March 25, when PeopleSoft holds its annual meeting.
In contrast to Oracle’s earlier offers of $16 and $19.50, the $26 all-cash bid “is more than fair,” said Merrill Lynch analyst Jason Maynard. “If I were a PeopleSoft shareholder, I would have to think more than twice about the offer.”
For Oracle to prevail, the Redwood City, Calif., company would have to persuade the holders of a majority of PeopleSoft shares to back the deal -- a feat that analysts said moved Wednesday from unlikely to plausible.
Oracle also has to convince regulators in Washington and at the European Union that a combined company wouldn’t hold too much sway over the market for business productivity software.
The new bid represents a 19% premium over PeopleSoft’s closing stock price Tuesday. But PeopleSoft shares rose just 81 cents Wednesday to $22.70 on Nasdaq -- reflecting skepticism among investors that regulators would approve a takeover.
The higher offer “definitely changes the game, but it does not eliminate the hurdles,” Piper Jaffray analyst Tad Piper said.
Oracle said its offer would expire March 12, by which time it said it expected to have heard from federal regulators. Both the U.S. and the EU are currently investigating the antitrust implications. If there is a move to block the deal, Oracle could sue to have that decision overturned in court or offer a compromise.
Pleasanton, Calif.-based PeopleSoft said its board would meet to decide whether to endorse the new bid. Most observers said they doubted that the directors would recommend capitulation, given the bad blood between Oracle Chief Executive Larry Ellison and his former lieutenant, PeopleSoft CEO Craig Conway.
PeopleSoft on Wednesday reiterated its reasons for rejecting Oracle’s previous offers, including its belief that Oracle plans to stop selling some of PeopleSoft’s software for managing human resources tasks and other functions. It has tried to discourage Oracle by promising customers refunds of as much as 500% if Oracle takes over and cancels support for PeopleSoft products. The company also has a “poison pill” takeover defense, which is designed to make a hostile tender offer prohibitively expensive.
The two companies are engaged in multiple lawsuits, with PeopleSoft claiming that Oracle’s chief goal has been to disrupt its business.
The new bid deflates that argument, analysts said. “Some people were saying Oracle was fooling around,” Maynard said. “This takes that complaint off the table.”
The extra money could bring the two companies to the bargaining table, analysts said.
Shareholders also are considering how to vote in a proxy contest for control of PeopleSoft’s board. Oracle has proposed a slate to replace the four of the company’s eight directors up for reelection and has proposed adding a ninth director, who could tip the balance and drop the poison pill. Voting is set to end March 25.
In any case, the end of Oracle’s quest has suddenly come into view, far faster than many had anticipated. PeopleSoft triggered that accelerated schedule by deciding to hold its annual meeting two months earlier than it did last year. “That, in effect, forced Oracle to put its cards on the table,” Maynard said.
The order of the last steps could be crucial. If the Justice Department hasn’t blessed the deal by the time the tender offer closes and the board election is held, large shareholders may be reluctant to entrust PeopleSoft’s future to directors put forward by a competitor, said Steve Cohen, a hedge fund manager at Kellner DiLeo Cohen & Co., which has been trading PeopleSoft stock.
“A lot of institutions are saying, ‘What do I gain by voting for the [Oracle] nominees?,’ ” Cohen said.
Oracle spokeswoman Jennifer Glass said the company “has been assured by the Department of Justice that we will have a decision prior to March 12,” the tender offer closing date.
Oracle shareholders, meanwhile, displayed little enthusiasm for the acquisition. The stock dropped 64 cents on Nasdaq to $13.27, its lowest closing price in a month.
“We view the increased PeopleSoft offer as a distracting, negative step back towards increased investment” in software applications and away from Oracle’s core database business, Sanford C. Bernstein & Co. analyst Charles Di Bona wrote in a research report.
Integrating the two companies’ products would be challenging and expensive, other analysts said.
“If the objective is not to keep the products but just to keep customers, then I like the deal on the margins,” said David Hilal of Friedman, Billings, Ramsey. “If they find a way to use the products, then I like it much more.”
