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Oracle gives 'final offer'

November 2004

Oracle gives ‘final offer’

By David Morrill, BUSINESS WRITER 
Tuesday, November 02, 2004

Take it or leave it. 

That was the message sent by Oracle Corp. on Monday as the company made a "best and final" offer to take over PeopleSoft Inc. by raising its bid 14 percent to $9.2 billion. 

The $24-per-share offer came with an ultimatum that if by 9 p.m. on Nov. 19 a majority of PeopleSoft's shares have not been tendered, then Oracle will withdraw its offer. 

"We think the time has come for the stockholders of PeopleSoft to decide the outcome," said Oracle Chairman Jeff Henley. 

Through last week, Oracle said, only 20.2 million PeopleSoft shares -- about 5 percent of the outstanding stock -- had been tendered. 

Monday's offer marks the fourth time Redwood City-based Oracle has changed its bid during the company's 17-month battle to acquire Pleasanton-based PeopleSoft. The most recent bid was $7.7 billion, or $21 per share.

"If you are a shareholder, you can take $24 (per share) in cash and use that to go invest in some other stock or you can turn down the deal and then watch your PeopleSoft stock fall immediately lower," said David Hilal, an analyst at Friedman, Billings, Ramsey & Co. "PeopleSoft's board has to see the writing on the wall. It's time to sit down and negotiate." 

PeopleSoft's board of directors released a statement Monday advising stockholders to wait to tender shares until it can review the latest offer. 

Some firms that own PeopleSoft shares, such as The Robeco Group, however, may not wait. 

"It's a good new offer, which should lead to a deal," said Michiel Plakman, a portfolio manager with the Robeco Group. "At this price, I'll tender our 

PeopleSoft stock to Oracle." 

On Monday, shares of PeopleSoft rose $2.16, or 10 percent, to close at $22.93. Oracle shares rose 9 cents to $12.75. Oracle's $24 offer is just 4 cents off PeopleSoft's 52-week high of $24.04. 

"We believe if Oracle were to truly go away, shares would drop at least below $20 and maybe even below $17," said Ken Marlin, an investment banker with Marlin and Associates in New York. "By raising the price, and putting a deadline on the offer, we feel that Oracle is putting a tremendous amount of pressure on PeopleSoft's board. 

"Clearly the smart thing for the PeopleSoft board to do right now is to sit down with Oracle and try to work something out," he added.

Investors may have been reluctant to tender their PeopleSoft shares while regulators challenged the Oracle bid on antitrust grounds. 

The U.S. government lost its antitrust case against the Oracle takeover in September, and the European Union gave its approval Oct. 26. 

Now that such issues have been removed, analysts believe more shares will be tendered at the higher offer. 

"This new amount shows that Oracle is serious, and it may be enough to make something happen," said Eric Upin, an analyst with Wells Fargo Securities. 

Oracle's takeover prospects brightened about a month ago when PeopleSoft unexpectedly fired Chief Executive Craig Conway, a former Oracle executive who had led the company's resistance to the hostile takeover. PeopleSoft replaced Conway with its chairman and co-founder, Dave Duffield. But Duffield has stressed that he didn't come out of semiretirement to sell PeopleSoft. 

Oracle believes a PeopleSoft takeover would create an even more profitable company that's better equipped to compete with business applications software leader SAP of Germany, as well as more diversified technology giants Microsoft Corp. and IBM Corp. 

Besides raising its price, Oracle promised to introduce a new generation of PeopleSoft products -- a move apparently aimed at appeasing PeopleSoft customers who opposed the takeover. Oracle previously had planned to stop developing new PeopleSoft products while supporting the existing lines of the company's software for at least a decade. 

Oracle's product pledge might help the company protect itself from unusual refund guarantees that PeopleSoft has made to its customers. Through Sept. 30, PeopleSoft had pledged to refund up to $2.4 billion to customers if the company is sold and a new owner doesn't provide adequate product support. 

If the acquisition is completed, Oracle officials have said they would fire as many as 6,000 of PeopleSoft's 11,700 employees. 

Oracle made the new offer as it awaits a ruling in a suit it filed in Delaware Chancery Court to strike down an anti-takeover measure adopted by the PeopleSoft board. The new bid came at the request of the judge in that case, who asked the company to make its best offer before he issued a ruling, Henley said. 

If PeopleSoft's board refuses to drop the antitakeover provision known as a "poison pill," Oracle intends to urge Judge Leo Strine to force the company to abandon the defense. The poison pill is designed to make unwelcome takeover attempts too expensive to pull off by flooding the market with new shares. 

Meta Group analyst David Yockelson said the deadline to tender shares gives Oracle a graceful way to bow out if PeopleSoft rebuffs the bid again. 

"It's really the best of both worlds for Oracle," Yockelson said. "Either they can complete the acquisition at a slight premium to what they would have paid a week ago or they can walk away honorably." 

The Associated Press and Bloomberg News Service contributed to this report.

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