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PeopleSoft Extends Customer Refund Program

The high-profile power struggle between PeopleSoft and Oracle has become nothing if not a series of legal maneuvers and filings -- both in court and with federal regulatory bodies such as the Securities and Exchange Commission.

PeopleSoft Tuesday filed a motion with the SEC to extend its customer refund program, which some experts have tabbed an "unofficial poison pill," until Dec. 31. While deadline extensions are nothing new -- Oracle itself has extended its $7.5 billion bid for Pleasanton, Calif.'s PeopleSoft five times -- PeopleSoft appeared to tweak conditions in a revision of the refund policy in a SEC filing Oct. 27, broadening the acquisition label that would trigger customer refunds that could cost more than $800 million to a potential suitor.

Launched in June after Oracle bid to acquire PeopleSoft, the Customer Assurance Program (CAP) was designed as protection for customers and PeopleSoft in the face of a hostile takeover, and pledged to provide refunds of two to five times customer licensing fees if the company changes hands and certain conditions aren't not met.

In its 14D-9 filing, PeopleSoft extended the definition of being acquired to include "a change in the composition of the Board occurring within a two year period, as a result of which fewer than a majority of the directors are Incumbent Directors." Incumbent directors include those who are currently on the board or those who join at the time of such election or nomination.

While PeopleSoft spokesman Steve Swasey said this was an administrative error and that it was not the finished contract that was sent to customers, it still managed to incite a minor furor among PeopleSoft shareholders, who protested the revisions in a November 6 in a filing to a Delaware Court.

They noted that the amended customer assurance program was a "disproportionate and unreasonable response to any perceived threat to Oracle's offer" because it meant that an "acquisition," as PeopleSoft defined it, could count simply as a change in membership of just more than half of the members of the board.

This would conceivably make it easier for the clause that constitutes a company purchase to be triggered. The way the amendment was structured, it would cost an acquirer an additional $800 million to the purchase price, the plaintiffs said.

The outcry resulted in embarrassment for PeopleSoft, who later filed a corrected document saying that a change in majority control of its board would not trigger refund payments to customers.

"After the latter contracts were signed, the Company sent each customer that signed such contract a letter clarifying that the Company would not be deemed acquired within the meaning of the Customer Assurance Program terms as a result of a change in the majority of the Board of Directors unless PeopleSoft were acquired after the change in the Board," PeopleSoft stated in a Monday filing.

PeopleSoft's official customer refund program position is that replacing directors would trigger refund payments only if the changes result in an acquisition.

Meanwhile, the confusion swirling around the CAP has caused some financial analysts to become skittish. JMP Securities Wednesday issued a research note urging caution about purchasing PeopleSoft shares in light of what it calls an "opacity" regarding the accounting used for the J.D. Edwards purchase and the CAP.

Under "the revised CAP, customers can claim a cash payment if an acquiring company delivers new products less quickly than PeopleSoft delivered them or reduces the extent and quality of new products compared to the extent and quality provided by PeopleSoft," wrote report authors Patrick Walravens and Devang Kothari. "Some of these revised business triggers lack a materiality qualification and are so broad that it would be difficult for an acquiring company to avoid triggering the cash payments, in our opinion.

"While the CAP was designed to protect PeopleSoft customers in an acquisition, we believe the CAP is likely to reduce the amount that an acquiring company would be willing to pay to the PeopleSoft stockholders," the note continued. "We believe an acquiring company would determine that it might trigger payments under the CAP terms - even if it plans to continue to support the PeopleSoft products. Consequently, we believe an acquiring company would allocate a portion of its take-over budget to making cash payments to customers, with the balance going to stockholders."