Oracle Wins Tender Fight – But…

November 22, 2004 (PLANSPONSOR.com) - After sitting on the sidelines for months - and with some apparently still not wholly satisfied with the terms - a majority of PeopleSoft shareholders have thrown their lot in with a hostile takeover bid.

Redwood City, California-based Oracle had said it planned to drop the bid for HR software maker PeopleSoft if it was unable to draw more than 50% of shares outstanding by Friday’s deadline – which had been extended numerous times and at varying amounts over the past year and a half in what had appeared a vain attempt to sweeten the $8.8 billion offering sufficiently (see  Oracle Bumps PeopleSoft Hostile Takeover Bid ).   On Saturday,  Oracle said that more than 60% of outstanding PeopleSoft shares had been tendered at the final bid.   “The owners of PeopleSoft have spoken and have overwhelmingly chosen to sell to Oracle at $24.00 per share,” said Oracle’s chief executive officer, Larry Ellison, in a  statement .   “We are prepared to enter into a definitive merger agreement as early as this weekend.”

In June 2003 Oracle launched a hostile tender for PeopleSoft at $16 per share (see  Pac Man Rules Software Makers: Oracle Bids for PeopleSoft ).

Not surprisingly, given the tenor of the discussions between the two firms to date, on Saturday PeopleSoft’s board rejected anew the $24/share bid, as it had previously, noting that the company “…is worth substantially more than the $24 per share offered by Oracle.”   In a  statement   PeopleSoft’s board “…reiterated that it will not sell the Company for less than it is really worth and that the Company’s business plan creates superior value for stockholders.”   PeopleSoft closed at $23.17/share on Friday.

Despite the tender results, PeopleSoft director George “Skip” Battle said in a statement, “A majority of our stockholders agree that Oracle’s $24 offer is inadequate and does not reflect PeopleSoft’s real value,” going on to note that some who tendered told PeopleSoft they think the company is worth more.   Directors of PeopleSoft contacted Oracle on November 10, saying they would be willing to discuss a higher offer, PeopleSoft said in its statement.

However, in a letter to PeopleSoft’s board on Saturday, Ellison said the $24-a-share cash bid remains his “best and final” offer – and that “It’s time to bring this matter to a close for the good of PeopleSoft’s shareholders, customers, and employees.”

In the week before the "best and final" offer was due to expire, a number of public pension plans tendered their PeopleSoft holdings, including the  California Public Employees' Retirement System (CalPERS), as well as pension funds in New York and Ohio, and institutional investor Capital Guardian Trust Co. (see  Oracle Takeover Bid for PeopleSoft Splits Vote ).

On Saturday Oracle also said that, "Given that a majority of PeopleSoft's owners are now prepared to sell at $24.00 per share, we are requesting the Board immediately redeem the poison pill and exempt the transaction under Delaware Section 203."  

Pill Kill?

In a letter to PeopleSoft's board, Oracle called on directors to remove the company's "poison pill'' anti-takeover defense that would flood the market with low-cost stock and make the bid prohibitively expensive.   If they resist that call then Oracle would likely push the matter in the courts - where they are already battling over what it has cast as a "poison pill," PeopleSoft's Customer Assurance Plan - essentially a rebate that would require any acquirer to pay new customers up to five times the cost of their software license if it failed to support PeopleSoft's software (see  Ex-CEO Takes Stand in PeopleSoft/Oracle Trial, Defends Defensive Tactics ).   Indeed, the tender offer is conditioned on the removal of PeopleSoft's poison pill - and until that condition is met, holders who tendered their shares are free to back out.

Moreover, in a survey conducted last week, AMR Research found many PeopleSoft customers have reservations about a merger - particularly those who used J.D. Edwards' products.   Ironically, PeopleSoft announced its acquisition of former software competitor J.D. Edwards less than a week before Oracle launched its hostile bid (see  Pac Man Rules Software Makers: Oracle Bids for PeopleSoft ).   According to reports from Dow Jones and TheStreet.com, nearly two-thirds of 150 customers said they would stop paying maintenance fees to Oracle either immediately or if Oracle stops enhancing their products, provided they could find maintenance from a third party.   Nearly half (47%) said they expected Oracle to add no new features to their software.

However, should the judge decide not to strike down the poison pill, Oracle's next step would be a proxy battle for votes at PeopleSoft's annual meeting, which will probably be held in late April or early May next year.   Four of PeopleSoft's seven board members will be up for re-election at that meeting.

Diversification Focus

Oracle's interests lie in a desire to diversify its revenue base to include applications such as payroll and human-resources programs, and thus lessen dependence on database software, which now accounts for about 80% of Oracle's revenue, according to Bloomberg.   Acquiring PeopleSoft would restore currently #3 ranked Oracle to the #2 spot in the $22 billion market for business-management software, behind Germany's SAP AG.   PeopleSoft vaulted ahead of Oracle last year when it acquired J.D. Edwards & Co.  

During the contentious bidding PeopleSoft lost customers, and claims the bid cost it more than $1 billion in lost sales through June 30.   The deal also resulted in the abrupt termination of President and Chief Executive Craig Conway due to a cited "loss of confidence in Mr. Conway's ability to continue to lead the company." (see  Takeover Target PeopleSoft Announces Exec Reshuffle ).   Conway, a former Oracle executive, led opposition to the takeover.  

Also not surprising in this apparent war of shareholder attrition - Oracle announced that it was extending its tender offer until 6:00 P.M. (EST) on Friday, December 31, 2004.

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