Oracle Prepared to Drop PeopleSoft Bid

by Roy Mark

Court document says if PeopleSoft shareholders reject 'final and best offer,' Oracle will walk away from deal.

Oracle will drop its efforts to block PeopleSoft's defense to Oracle's hostile takeover bid if PeopleSoft's shareholders fail to tender a majority of their shares by Nov. 19, according to an Oracle letter sent to a Delaware court.

The development could lead to Oracle abandoning its hostile takeover bid for PeopleSoft.

If Oracle's $24-a-share offer attracts less than 50 percent of PeopleSoft's shares, the letter to Delaware Chancery Court Judge Leo Strine Jr. says Oracle "will drop its claims before this Court seeking redemption of the poison pill and an order enjoining PeopleSoft's CAP (Customer Assurance Program)."

An Oracle spokesperson declined to comment on the letter.

Oracle went to the Delaware court in early October in an attempt to force PeopleSoft to remove its CAP program, which guarantees a refund to PeopleSoft customers should the company be acquired by a hostile takeover. The program, along with a shareholder poison pill, are about all that stands in the way of Oracle's relentless proposed takeover of PeopleSoft.

Judge Strine has not issued an opinion in the case.

"Oracle's best and final offer expires on Friday, November 19. Under the terms of the offer, if less than 50 percent of PeopleSoft shares are tendered by that date, then Oracle's tender offer will end," the letter states.

During the Delaware trial, PeopleSoft board member Steven Goldby told the court that he was open to discussing a deal with Oracle at the "right price," but it would have to be for more than the then tender offer of $21 per share. Oracle CEO Larry Ellison and co-president Safra Catz suggested that the price would more than likely go down and not up.

In fact, the PeopleSoft stock price climbed to more than $23 a share and Oracle made another bid at $24.

Oracle has already prevailed against the Department of Justice's (DOJ) attempt to block the proposed Oracle-PeopleSoft merger on antitrust grounds and the European Union has ruled it will not block deal.

U.S. District Court Judge Vaughn R. Walker said the DoJ had not proven in its suit that the takeover would harm competition in the market for certain enterprise software applications.

The DOJ's case tried to prove that the hostile takeover would limit customer choices to just Oracle and market leader SAP AG, creating a monopoly in the enterprise resource planning (ERP) market. Those tools include Human Resource Management and Financial Management Services. Throughout the trial, Judge Walker questioned the DoJ's position while analysts criticized the government for oversimplifying the definition of top-tier and mid-tier ERP players.

Oracle refuted each claim arguing that the government's ERP definition is too narrow and must be widened to include Microsoft and IBM , as well as Lawson, Fidelity Employer Services Company (FESCo) and Ceridian.

Redwood Shores, Calif.-based Oracle boosted its position by calling several high-profile witnesses including CEO Larry Ellison. The company also went for the jugular placing rivals on the stand like IBM Steve Mills, the senior vice president and group executive in charge of IBM's $14 billion software business; Douglas Burgum, a senior vice president with Microsoft Business Solutions who knows the Redmond, Wash.-based firm's ERP lines as well as its CRM applications; and Richard Knowles, vice president of operations at SAP America.

The trial itself took several twists and turns from the very first day, including the revelation that Microsoft was embroiled in a $65 billion plan to acquire SAP as early as this year.

Court testimony revealed that the Microsoft/SAP merger was hatched after Microsoft chairman Bill Gates found out that Oracle wanted to purchase PeopleSoft. The chairman and Chief Software Architect immediately fired off an e-mail to Microsoft's Steve Ballmer asking the CEO to consider taking a financial stake in Pleasanton, Calif.-based PeopleSoft or acquiring SAP. Outside of the courtroom, Microsoft acknowledged that it initiated preliminary discussions with the Waldorf, Germany-based ERP leader but has since dropped the issue.

Oracle's acquisition plans even caused IBM to blink. Court testimony uncovered a memo implying that Big Blue was fearful enough of an Oracle/PeopleSoft merger that it considered launching a "campaign of FUD" (fear, uncertainty and doubt) against Oracle. The tactics included IBM support of PeopleSoft through a blanket of analyst, press, customer and regulatory authority statements.

A separate memo suggested that IBM consider acquisitions of middleware companies as a counterstrike to help prevent Ellison and Co. from edging into the competitive mid-market. In another chart titled "Predators' Ball," IBM looked at acquiring Oracle and SAP and even Microsoft.

Oracle was not immune to controversy during the trial. While on the stand, Oracle's Larry Ellison recounted his conversations with PeopleSoft CEO and former Oracle executive Craig Conway. The exchange with DoJ lawyers solidified Ellison's take-no-prisoners attitude as he and Conway voraciously disagreed on whom should run the company.

Ellison also revealed Oracle's consideration for three or four other acquisitions of unnamed public companies including one that specialized in business intelligence software, a pure software application company and a middleware infrastructure company.

During earlier trial evidence in the form of videotaped testimony, Ellison recounted some of the rationale to acquire not only PeopleSoft but as many as eight different acquisition targets, including Siebel and Lawson, which approached Ellison separately with their own acquisition proposals and J.D. Edwards (eventually acquired by PeopleSoft).

Government testimony also revealed Oracle's aggressive business practices when it comes to giving discounts to undercut the completion. Conversations between Oracle's inner circle and its advisors highlighted Oracle's discount ticket procedures and its trademark practice of undercutting PeopleSoft's offers to customers to "lowball the price to nowhere."

In a surprise move, Oracle's lawyers dropped its plan to call PeopleSoft's Conway to the stands. Defense lawyers had initially set aside six hours to interrogate PeopleSoft's CEO but cancelled the appearance at the last second. Oracle's lawyers said by the time Conway would have appeared, they felt comfortable enough in their arguments. Analysts surmised that Oracle might have been too afraid of what Conway would say to injure Oracle's business.

  This article was originally published on Tuesday Nov 9th 2004
Mobile Site | Full Site