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Oracle focus shifts to pending antitrust review

January 2004

Oracle focus shifts to pending antitrust review

JUSTICE DEPT. WON'T DECIDE BEFORE LATE FEB.

By Chris O'Brien

Tuesday, Jan. 27, 2004

With Oracle stepping up its fight to acquire PeopleSoft, attention now turns to the prolonged antitrust review of the hostile bid, expected to be finished in late February at the earliest.

Oracle of Redwood Shores informed PeopleSoft of Pleasanton on Friday that it intends to wage a proxy battle for majority control of PeopleSoft's board by nominating five people for the eight-member board. Gaining control of the board would help Oracle complete a takeover bid that PeopleSoft has repeatedly rejected.

But the proxy fight for shareholder votes likely won't begin in earnest until the Justice Department decides whether the combination of the two business-software makers would violate antitrust laws, observers said.

``We've been saying for quite some time that a lot of this legal and political and marketing positioning we see both by Oracle and PeopleSoft is just positioning until the DOJ makes it call,'' said Betsy Burton, a Gartner analyst.

Eyes on stock price

If the bid passes antitrust review, analysts say the outcome of Oracle's $7.5 billion takeover bid -- and its campaign for board seats -- will likely depend on whether PeopleSoft stock still is trading above Oracle's offer of $19.50 a share. If the stock price stays above Oracle's offer, it would be tough to persuade PeopleSoft shareholders to back Oracle.

PeopleSoft's stock Monday rose 42 cents, or 1.9 percent, to $22.99 a share. Oracle's stock dropped 7 cents, or 0.5 percent, to $14.47 a share.

Several media reports in recent months have indicated the Justice Department staff is leaning toward recommending against approval of Oracle's bid and is building a legal case against it. Oracle has insisted that a decision has not been made.

The review has dragged on longer than expected, with Oracle only fulfilling a Justice Department request for additional information in late December.

In a letter published by the Wall Street Journal on Monday, PeopleSoft Chief Executive Craig Conway restated charges that Oracle was intentionally drawing out the process as long as possible to damage PeopleSoft's business.

``In our view, Oracle, not the regulators, is working at `largo tempo,' deliberately dragging its feet with regulators in order to try to inflict harm on PeopleSoft,'' Conway wrote in response to a Journal editorial last week that chastised government bureaucrats for taking too long to review the bid.

PeopleSoft got a boost Monday when a Schwab Soundview analyst raised his price target for the stock to $30 a share.

Although Ken Marlin, general partner at Marlin & Associates, a technology banking and investment firm, disagrees with that rosy outlook, he says the share price remains the key to the outcome of the takeover bid. ``It's all about the stock price,'' he said.

Marlin said he doesn't think the launch of a proxy fight gives Oracle any immediate leverage in its bid. However, he called the strategy ``creative.''

PeopleSoft is expected to hold its annual meeting in May, though an official date likely won't be set until March.

If Oracle raises its bid, Silicon Valley could see its most bitter proxy battle since Hewlett-Packard's plans to buy Compaq Computer.

Proxy services

Although only four PeopleSoft board members are up for re-election, Oracle on Friday asked PeopleSoft to either put a fifth member up for re-election or face a shareholder proposal to expand the board to nine members. PeopleSoft issued a statement over the weekend criticizing Oracle's attempt to gain control of PeopleSoft's board.

Both sides already have proxy services to help them in their campaigns -- MacKenzie Partners for Oracle and Georgeson Shareholder Communications for PeopleSoft. And PeopleSoft is working with Joele Frank, a public-relations specialist who advised dissident board member Walter Hewlett in his campaign to derail the HP-Compaq merger.

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