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PeopleSoft tells shareholders to reject Oracle’s sweetened bid

June 2003

PeopleSoft tells shareholders to reject Oracles's sweetened bid

By Michelle Kessler and Jon Swartz, USA TODAY
 6/18/2003

PeopleSoft (PSFT) urged its stockholders on Friday to reject Oracle's (ORCL) unsolicited $6.3 billion takeover offer, saying the price was too low and citing the possibility that federal regulators might object to the deal.

PeopleSoft said its board of directors voted unanimously to recommend rejection of the hostile bid, which was sweetened earlier this week by more than $1 billion over the initial $5.1 billion offer. 

In early June, Oracle offered $16 a share in cash for its smaller rival. After meeting with PeopleSoft shareholders, Oracle increased its bid 22% Wednesday, to $19.50 a share. 

But PeopleSoft president and chief executive Craig Conway said Friday even the sweetened offer was inadequate. PeopleSoft's board voted unanimously to advise shareholders to refuse to cash in their shares before the July 7 deadline. 

"Oracle's offer undervalues the company and is not in the best interest of PeopleSoft stockholders," Conway said. "It is highly conditional, faces significant regulatory delays and uncertainty, and threatens serious damage to our business." 

Oracle, which has begun an advertising campaign in support of its bid, responded tersely. 

"Once again, PeopleSoft's board has put management's interests first, ignoring the mounting demands of its shareholders to redeem the poison pill and meet with Oracle," Oracle spokesman Jim Finn said Friday. 

The biggest hurdle to Oracle's completion of the takeover is the ability of PeopleSoft executives to activate a "poison pill," which typically fends off unwelcome suitors by issuing new shares of the target company, boosting the cost of the deal.

Oracle is urging PeopleSoft shareholders to call executives and demand that the poison pill provision be eliminated. 

PeopleSoft and Oracle compete in the business software niche. They build computer programs to run giant databases so corporate clients can store customers' credit card and other personal information, process transactions online, or compile personnel data on internal Web sites.


Meanwhile, PeopleSoft is pressing ahead with its offer to buy shares of J.D. Edwards, which it agreed to acquire before Oracle's bid, for cash and stock.

Buying J.D. Edwards (JDEC) would make PeopleSoft less attractive to Oracle, which is looking to acquire only one company at a time.

PeopleSoft's Conway, who has compared Oracle CEO Larry Ellison to Genghis Khan, was unusually tight-lipped Thursday in a speech at a tech conference. Conway's strongest remark was that the J.D. Edwards deal "definitely caught the interest of competitors."

PeopleSoft is following the pattern of most takeover targets, says Ken Marlin, an expert on mergers and acquisitions. "The first reaction is shock, horror and indignation," he says. "The second is haggling over price and independence."
 
If PeopleSoft's rejection of Oracle's offer prompts a decline in PeopleSoft's stock, that could prompt shareholder lawsuits, Marlin says.


Customers with millions invested in PeopleSoft are watching warily. "It doesn't look good for us," says Randy Baker, information systems manager at Richmond Power and Light. It would cost more than $1 million dollars, and take more than a year, to replace Richmond's PeopleSoft system.

Oracle says it would support existing PeopleSoft software. But it would discontinue new products. That means companies would eventually have to replace complex PeopleSoft systems — an expensive job that can take years.

On Friday, Oracle reassured PeopleSoft customers it would keep developing its smaller rival's business software products for at least a decade if its hostile takeover bid succeeds. 

Oracle Chief Executive Larry Ellison issued a statement charging PeopleSoft executives with engaging in "lies and scare tactics" by telling customers they would be forced to convert to Oracle software in the event of a merger. "We will continue to develop and improve PeopleSoft's products for at least the next ten years -- even longer, if customers require further support," Ellison said. 

Having to switch products is partly why Connecticut Attorney General Richard Blumenthal filed an antitrust lawsuit Wednesday to block the deal. Connecticut, installing a $100 million computer system, spent $10 million on PeopleSoft software.

Blumenthal argues that an Oracle-PeopleSoft marriage would leave just two "meaningful" rivals in the markets they serve — the merged companies and giant SAP. Although there would still be many small players in that market, they are not big enough to serve large customers, the state argues.

But some antitrust experts are skeptical about whether such a narrowly defined market would hold up in court and whether it would raise concerns at the Justice Department, which likely would review the merger.


Contributing: Paul Davidson; wire reports

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