In-Depth

PeopleSoft’s Fate Up to Shareholders

Oracle’s “best and final offer” has left PeopleSoft’s fate in the hands of stockholders.

• By Stephen Swoyer
• 11/16/2004

For spectators in the ongoing clash between Oracle Corp. and PeopleSoft Corp., this could be a watershed week.

Oracle’s tender offer to PeopleSoft stockholders will end on November 19th—this Friday—and the PeopleSoft board, having rejected Oracle’s offer, has, in effect, left the fate of the company in the hands of stockholders.

“[PeopleSoft] will hope that less than a majority of the shares are tendered by the November 19 deadline so that Oracle will withdraw its bid,” write Paul Hamerman and Jessica Harrington of Forrester Research.

Oracle has called the offer—which it tendered to PeopleSoft stockholders and the PeopleSoft board earlier this month—its “best and final offer.” The database giant increased the value of its offering for the fifth time since June of 2003, this time by 14 percent, to $24 a share. And for the first time, Oracle set a deadline: midnight November 19th.

Hamerman and Harrington believe Oracle means to stick to that deadline, although they note PeopleSoft could have some wiggle room if its board approached Oracle to negotiate the terms of the acquisition.

So what happens if PeopleSoft stockholders accept Oracle’s offer? For starters, Oracle must do what it can to eliminate a poison pill program PeopleSoft put in place last year. PeopleSoft’s poison pill comes in the form of a refund—which at this point incurs a total liability of approximately $800 million—that Oracle (or any other would-be acquirer) must pay to PeopleSoft customers should its take-over succeed. “If a majority of the shares are tendered by midnight, November 19, Oracle will ask the Court to eliminate the poison pill—PeopleSoft's last line of defense—if PeopleSoft is unwilling to do so,” Hamerman and Harrington note.

Throughout the Oracle-PeopleSoft imbroglio, there’s been speculation that Oracle’s attempt was motivated as much by CEO Larry Ellison’s famously competitive personality as by strategic concerns. After all, former PeopleSoft CEO Craig Conway was an Oracle veteran, and the acquisition of J.D. Edwards—initiated under Conway’s stewardship—positioned PeopleSoft to leap past Oracle in the enterprise applications market.

“I do think a portion of this was to destroy Conway, because it was very personal between the two. If it extends beyond Conway and it’s to destroy PeopleSoft, however, then that’s what Larry’s going to do. If his goal really is to merge with the firm, this at least increases the probability that the merger would be friendly,” said Rob Enderle, a principal with The Enderle Group, last month.

Conway, of course, was dismissed from PeopleSoft at the end of September. Which begs the question: Has Oracle—or Larry Ellison—tendered its last best offer because the lure of acquiring PeopleSoft and besting Conway has lost its luster? Forrester doesn’t think so.

“With a cash war chest of more than $10 billion, Oracle is committed to making acquisitions that will increase shareholder value,” write Hamerman and Harrington. “While Oracle's preference is to do this deal, the latest offer recognizes the reality that Oracle cannot make major alternative strategic investments as long as this deal, now worth $9.2 billion, is on the table.”

The offer comes at a very precarious time for a PeopleSoft that is still trying to find its feet under founder and new CEO Dave Duffield. “In connection with these [management] changes, PeopleSoft promised to define a new long-range technology strategy and improve customer satisfaction, but these plans are still in progress,” write the Forrester researchers. “Definitive strategies to move the company forward could help justify a rejection of Oracle's offer, but the tender offer's short time frame may preclude this opportunity.”

At the same time, Hamerman and Harrington note, PeopleSoft Q3 2004 financial results were much better than expected—which could also factor into what stockholders decide to do. “[This] took away the opportunity for Oracle to do the deal at a lower price. In addition, the results help refute Oracle's contention that PeopleSoft is not viable as an independent company,” they conclude.