In-Depth

Oracle vs. PeopleSoft: The Hostility Factor

Words—and lawsuits—fly

• By Stephen Swoyer
• 06/17/2003

Judging by the reactions of PeopleSoft and would-be acquisition partner J.D. Edwards Company, Oracle CEO Larry Ellison is about as popular a figure in Pleasanton and Boulder as fictional corporate raider Gordon Gecko once was in the aircraft hangars of BlueStar Airlines in the movie "Wall Street."

To recap: Almost two weeks ago, Oracle announced a $5.1 billion hostile take-over bid for PeopleSoft. The database giant disclosed plans to stop selling PeopleSoft’s application stack to new customers, nor will it integrate PeopleSoft’s products with its own e-Business Suite. As if that’s not enough, Oracle has also said that it won’t release new versions of PeopleSoft’s application software.

Not surprisingly, PeopleSoft didn’t take very kindly to Oracle’s overtures of ownership. In a statement released after Oracle went public with its plans, PeopleSoft CEO described the company’s attempt as “atrociously bad behavior from a company with a history of atrociously bad behavior.”

Litigation A-Go-Go

Fast-forward to last Friday, when PeopleSoft formally filed suit against Oracle in Alameda County (Calif.) Superior Court, seeking an injunction to prevent the database giant from pursuing a hostile take-over bid against it. PeopleSoft’s move capped a week of uncertainty—much of it generated by Oracle itself—in which the embattled company appeared uncertain about its intent to pursue litigation against the database giant.

In this regard, PeopleSoft’s lawsuit must have come as a surprise to Oracle, which last Tuesday unilaterally announced that PeopleSoft had decided not to seek a legal injunction against it. “[C]ontrary to prior notice from PeopleSoft’s counsel, PeopleSoft decided not to commence litigation against Oracle on June 9 and cancelled its plan to appear in court today," Oracle said in a press release.

There was no comment from PeopleSoft at the time—which, for the record, had never publicly announced plans to sue Oracle in the first place.

If Oracle was telling the truth, PeopleSoft evidently had still another change of heart. On Friday, PeopleSoft released a statement in which it explained that it was suing Oracle “to put an end to what it characterizes as a sham tender offer aimed at destroying PeopleSoft's business.”

Ratcheting up the Chutzpah

In terms of cheekiness, Oracle may almost have met its match in J.D. Edwards, which—before the database giant commenced its low-ball take-over attempt—had agreed to be acquired by PeopleSoft (http://www.esj.com/news/article.asp?editorialsId=575) in an all-stock deal.

On Thursday, the mid-market enterprise applications stalwart—which has a sizeable installed base in AS/400-iSeries shops – filed suit against Oracle for $1.7 billion in Colorado state court, claiming that the database giant had “tortiously interfered with its proposed merger with PeopleSoft.”

J.D. Edwards also filed suit against Oracle in California Superior Court—specifically naming CEO Larry Ellison and executive vice president Chuck Phillips as co-defendants. In the California suit, J.D. Edwards alleges that Oracle, Ellison, and Phillips engaged in unfair business practices. “Oracle’s unsolicited offer for PeopleSoft will only destroy value for our companies’ shareholders, customers and employees and the technology community overall,” said J.D. Edwards’ CEO Bob Dutkowsky in a prepared release.

PeopleSoft Under Siege

In an SEC filing released on Friday, PeopleSoft disclosed that it has been served with no less than seven shareholder lawsuits.

Most of the suits were filed as a result of shareholder frustration with PeopleSoft’s tepid response to Oracle’s take-over bid. Some observers have said that the company has been consistently out-maneuvered by Oracle in the PR battle. At least one suit has been filed to block the company’s planned acquisition of J.D. Edwards.

PeopleSoft’s case wasn’t helped when Oracle on Friday reported strong earnings, its fourth quarter net income rising by 31 percent to $858 million—an increase of almost 31 percent over the $656 million in income it had during the same period last year.

Some analysts say Oracle’s strong earnings bolster its bid for PeopleSoft. “If I’m [PeopleSoft CEO Craig] Conway, I’m hoping that Oracle has a poor quarter. If they have a strong quarter, it’s going to give them additional momentum,” speculated Mike Schiff, a principal analyst with data warehousing consultancy MAS Strategies, before Oracle officially announced its earnings on Friday.

Oracle’s stock surged on news of the company’s strong quarter, even as PeopleSoft dropped below $17 a share—not far from the $16 per share offer that Oracle announced when it commenced its bid.