PeopleSoft Dumps CEO for Co-Founder
Oracle Corp.’s 16-month campaign to buy software rival PeopleSoft Inc. gained momentum Friday after PeopleSoft’s board unexpectedly sacked Chief Executive Craig A. Conway. Hours later, the Justice Department said it would not block a deal.
Conway, a former Oracle executive who fiercely opposed the $7.7-billion takeover attempt, was replaced Thursday night by PeopleSoft co-founder David A. Duffield.
PeopleSoft directors denied that Oracle’s bid played a role in Conway’s firing, but investors and analysts discounted vague explanations of board dissatisfaction offered during an early morning conference call.
“PeopleSoft is most certainly moving in the direction of negotiating a deal with Oracle,” said Nathan Schneiderman, analyst at Wedbush Morgan Securities in Los Angeles. “They see the writing on the wall. It’s just a matter of price now.”
PeopleSoft shares jumped $2.98 to $22.83 -- or nearly 9% above Oracle’s current tender offer of $21 a share. Oracle shares gained 62 cents to $11.90. Both trade on Nasdaq.
A former protege of Oracle Chairman Larry Ellison, Conway did little to hide his antipathy toward his former boss. Immediately after the unsolicited bid last year, Conway compared Ellison to the brutal Mongolian warrior Genghis Khan. For his part, Ellison said he would delight in firing Conway if he succeeded in taking over PeopleSoft.
Reached at his Woodside, Calif., home Friday, Conway, 49, declined to comment. His severance package, double his annual pay and bonus, is $4 million. In addition, he has stock options that could be worth as much as $60 million if Oracle acquires PeopleSoft.
An Oracle spokeswoman declined to comment on Conway’s firing or on whether the company would increase its offer. Oracle had offered as much as $26 a share but lowered the bid in May to reflect PeopleSoft’s falling share price at the time. About 7% of PeopleSoft shares have been tendered.
Hours after the board dumped Conway, Justice Department officials announced that they would not appeal a September court ruling that a combination of the two companies would not violate antitrust laws. The decision, in turn, makes it unlikely that the European Union would block the deal.
Analysts noted that the only remaining hurdle was a so-called poison pill that PeopleSoft’s board had adopted to prevent a hostile takeover. The provision lets the company issue millions of additional shares, effectively making a takeover prohibitively expensive. Oracle’s lawsuit to remove the provision is set to begin trial Monday in Delaware.
Combined, the events encouraged PeopleSoft investors who support the deal.
“It’s the oddest circumstances I’ve ever seen,” said Steven Cohen, partner at Kellner DiLeo Cohen & Co., a New York hedge fund that owns PeopleSoft shares. “I’ve never seen a company that’s so opposed to a deal suddenly toss out the chief architect of their defenses at such a critical time. It’s simply unimaginable. I’m hoping it signals a shift in the mind-set of board members.”
PeopleSoft directors insisted that it did not.
“The decision regarding Mr. Conway resulted from a loss of confidence in his ability to continue to lead the company,” PeopleSoft board member George Battle said during a conference call with analysts.
When pressed by skeptical analysts, Battle replied: “Your speculation that this has something to do with positioning ourselves in some direction with regard to Oracle is just not right.”
The skepticism was fueled in part by the fact that PeopleSoft has reported solid earnings for several quarters, despite the uncertainty triggered by Oracle’s takeover attempts, analysts said. For instance, PeopleSoft said Friday that it had made more than $150 million in license revenue for the third quarter ended Thursday, beating Wall Street expectations by $21 million.
“Honestly, their results for the last four to five quarters have been impressive in light of the circumstances,” Schneiderman said.
“It seems odd that you’d fire your CEO after reporting amazing results.”
Analysts noted that Duffield, 63, who co-founded PeopleSoft in 1987, is a likable executive who could smooth over any feathers ruffled between Oracle and PeopleSoft during a contentious and bitter ordeal.
“He’s a warm, fluffy teddy bear, and he’s a shrewd businessman,” said David Hilal, analyst at Friedman, Billings & Ramsey. “There’s no dispute that [Ellison and Conway] don’t like each other. That would have made negotiations tough if they’re both trying to squeeze every last drop of blood out of each other. Dave is going to be much easier to negotiate with, which will be better for both parties.”
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Times staff writer Joseph Menn contributed to this report.
