In-Depth

Oracle Sweetens Bid for PeopleSoft

Oracle attracts attention of state attorneys general, ups the ante, and takes its case to PeopleSoft customers in full-page newspaper ads

• By Stephen Swoyer
• 07/01/2003

When Oracle first announced its $5.1 hostile takeover bid (http://info.101com.com/default.asp?id=1802) for PeopleSoft, you could forgive some analysts for suggesting that Oracle didn’t intend to actually follow through with its threat. After all, the company's bid was on the low side—at $16 a share, it wasn’t significantly higher than the value of PeopleSoft’s stock at the time, and the company had publicly disclosed that it planned to stop selling PeopleSoft’s applications to new customers.

“I honestly don’t believe that Oracle is serious about this. It’s a very clever business move, but I’m not sure about the ethics of it,” commented Mike Schiff, an ex-Oracle veteran and a principal with data warehousing consultancy MAS Strategies. “Basically, Ellison is taking FUD [fear, uncertainty, and doubt] to a fine art, he’s creating FUD in the marketplace, and one has to question the effects it’s going to have on people who in are in the middle of a PeopleSoft procurement.”

Specifically, analysts warned, Oracle’s bid could have a disastrous effect on PeopleSoft sales, causing potential customers to defray new purchases or look elsewhere.

Mindful of this possibility, PeopleSoft’s International Customer Advisory Board last week dispatched a letter to many of the company’s customers in which it stressed that “the most effective way we can show our support for PeopleSoft is to help them achieve their second-quarter goals. If your company is planning any license or service purchases before the end of June, we urge you to expedite those purchases.”

Antitrust Scrutiny?

Not surprisingly, Oracle’s post-acquisition strategy caught the attention of many of PeopleSoft’s existing customers—including several state government organizations that use PeopleSoft's human resources (HR) applications. One such customer—Connecticut, which has a $100 million contract with PeopleSoft—filed an antitrust lawsuit against Oracle in mid-June.

Last week, several state attorneys general participated in a “fact-finding” conference call to discuss Oracle’s action. In public, participants downplayed the importance of the discussion, stressing that it was a routine occurrence.

“Today's conference call is a first-round, routine call to discuss the concerns of the states,” said Texas Attorney General Mark Abbott in a statement. “This is a standard, fact-finding process that typically happens anytime there is word of a proposed merger or takeover bid that affects states, or state government, as is the case in Texas.”

Abbott stressed that his office has not taken any legal action to prevent Oracle from perpetrating its bid. Like Connecticut, Texas is a PeopleSoft customer.

The Justice Department had until yesterday to request information from Oracle about the competitive impact of the deal. In view of the state of Connecticut’s antitrust lawsuit, the DoJ was expected to make such a request.

Cuddly Teddy Bear

In response to criticism that its initial offer was too low, Oracle subsequently sweetened its bid to $6.3 billion, or about $19.50 per share. Not surprisingly, PeopleSoft’s board rejected this offer as well.

Oracle has also gone on the offensive on other fronts as well, lobbying hard—with a prominent advertisement in The Financial Times—to convince PeopleSoft customers that in spite of their concerns, and the objections of PeopleSoft’s board, it has their best interests at heart. Dismissing PeopleSoft’s opposition as “scare tactics,” the ad asserted that Oracle "would not offer more than $6 billion in cash unless we really wanted you to be our customers. Our investment only pays off for our shareholders if we keep you happy. And we will."

To that end, Oracle pledged to support PeopleSoft’s existing products for 10 years—beyond the company’s existing product support roadmap. The database giant has also pledged to further enhance PeopleSoft’s existing applications, and has said that customers will not be forced to transition from the platform. In a conference call with reporters last month, Oracle executive vice president Chuck Phillips stressed that “we would not be paying more than $6 billion in hard, cold cash for these customers if we didn’t really want to have them.”

Moreover, during a keynote address at Oracle’s AppsWorld conference in London, CEO Larry Ellison refused to rule out further enriching Oracle’s bid for PeopleSoft. “Never say never,” Ellison commented.

Surprisingly, Oracle has even agreed to go forward with PeopleSoft’s planned acquisition of J.D. Edwards, should it succeed with its takeover attempt. This marks a reversal of course for the company, which had previously been noncommittal on the issue. In its offer, Oracle had also insisted on a condition whereby it had to approve changes in PeopleSoft’s planned acquisition of J.D. Edwards. Last week, Oracle agreed to waive this condition.

Nevertheless, a PeopleSoft representative told the Washington Post that Oracle has still not withdrawn a suit that it filed in a Delaware court to block his company’s merger with J.D. Edwards. “Oracle is just blowing smoke, again,” PeopleSoft spokesperson Steve Swasey told the Post.