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Latest Oracle Gambit Draws Criticism

Oracle's latest (and apparently its last) offer of $24 per share has triggered a maelstrom of opinions -- most pointing toward a complete takeover of rival PeopleSoft.

Analysts are quick to point out the revised offer worth an estimated $9.2 billion intensifies strain on any negotiations between Oracle CEO Larry Ellison and PeopleSoft CEO Dave Duffield. The two sides have until Nov. 19 to convince PeopleSoft shareholders or risk leaving the Pleasanton, Calif.-based software maker in a deflated state.

The epic merger saga currently awaits the decision of a Delaware Chancery Court to remove any lingering restrictions after U.S. and European antitrust regulators have cleared the plan.

But was Ellison's goal to acquire PeopleSoft or beat it to a pulp?

Philip Fersht, Yankee Group analyst and director of the research firm's Business Applications Group, noted that PeopleSoft's stock price has already fluctuated as the speculation mounts and revenues start to become impacted from losing new business sales.

"Oracle wanted to get this signed and sealed before other complications could creep in, i.e. other investors or an employee buy-out or perhaps taking the company private," he said. "I think the deal is imminent. I doubt there's much Duffield can do, besides plead with shareholders that this is a bad move for the future of the company, as Oracle could potentially get PeopleSoft for less in a few months."

PeopleSoft stock ranged between $22.75 and $23.22 per share in mid-day trading. Oracle shares inched up 12 cents to $12.78 at the same time. In a statement issued Monday, PeopleSoft's board reminded its shareholders that it has unanimously rejected all of Oracle's unsolicited offers, including the highest to date at $26 per share back in February 2004.

"This has been a big drain on both companies' resources," Paul Hamerman, analyst and vice president of enterprise applications with Forrester Research, told internetnews.com. "With the regulatory hurdles gone, Oracle wants to bring this to conclusion -- either to move forward with it, or walk away from it. PeopleSoft will hold out and hope that Oracle doesn't get a majority of shareholders to tender by Nov. 19. If it plays out that way, Oracle will move on and look to use its cash war chest for other acquisitions."

Analysts like Joshua Greenbaum, a principal analyst with Enterprise Applications Consulting, are quick to point out that Oracle had to raise the bid and make it completely unconditional if it wanted the bid to be treated seriously.

"I think Oracle is trying to capitalize on the growing momentum for its offer," Greenbaum told internetnews.com. "Considering the threats and posturing regarding a possible lower bid price, upping the ante is clearly meant to get the end-game rolling. If I were Dave Duffield, I'd be looking at how to invest all the cash that's about to come my way."

Melanie Hollands, president of Koala Capital, a hedge fund that focuses on technology stocks, suggested all eyes will now be on the Delaware Chancery Court to invalidate the poison pill.

"And if it does there is only one thing left for PeopleSoft CEO Dave Duffield to do. He has to get PeopleSoft users to threaten a walk out and have a third-party entity manage their maintenance. And that sounds like an unwieldy and unlikely customer mutiny to me," Hollands said.

"An interesting question is whether Oracle would wind up honoring the customer guarantee, or whether it's the last thing this management does on the way out, or whether Oracle sues to stop any money being paid out under the guarantee, etc.," she continued. "In a way it's like this election: could go either way. It's possible that Oracle might not honor the guarantees, as bad as that would be from a customer relationship standpoint. But it's enough money that I wouldn't put it past the company to do that."

Even as the clock winds down, PeopleSoft still has some leverage with shareholders. The company said it will continue with its $1 billion lawsuit against Oracle, which is scheduled to go to trial before a jury on January 10, 2005.

PeopleSoft's complaint alleges that Oracle has engaged in unfair business practices, including a deliberate campaign to mislead PeopleSoft's customers and disrupt its business.

CIOs are also divided when it comes to the merger. A recent survey by the CIO Executive Council found 44 percent agree with the merger while 43 percent disagree and 13 percent are unsure. The same pool of queries found a majority in favor of PeopleSoft keeping its poison pill and Customer Assurance Program (CAP). Some 50 percent polled believe the Delaware Chancery court should deny Oracle's plea to void PeopleSoft's anti-takeover provision. The next largest response -- 29 percent of those polled -- favor Oracle's request.