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PeopleSoft Girding For Proxy War

UPDATED: PeopleSoft and its stockholders are gearing up for an old-fashioned proxy fight, analysts said Thursday.

Oracle's hostile takeover bid for PeopleSoft is moving to the stockholders after Oracle's latest (and apparently its last) offer of $24-per-share was shot down by PeopleSoft's board of directors. The board said the price was too low.

"At this stage in the proceedings, money talks, and the PeopleSoft shareholders are likely to bite," said Philip Fersht, Yankee Group analyst. "The industry has largely accepted the inevitability of this merger, and it would be a major turn-up if the shareholders do not accept the $24 per share offer. I predict game-set and match to Ellison in time for Christmas."

Fersht said PeopleSoft would have a tough job persuading shareholders that they will be able to hold out for a better price.

Oracle would be looking for a majority of stockholders to accept the offer (which values its rival at about $9.2 billion) before November 19. After that, Oracle said it would walk away from fight. The company's latest estimates show some 20,191,181 shares had been tendered in and not withdrawn from the offer. A Delaware Chancery court is still mulling whether to make PeopleSoft remove its so-called "poison pill" and customer rebate provisions, both anti-takeover measures.

But even if a majority tender shares in favor of the merger on the 19th, analysts point out that it does not mean that Oracle will automatically acquire PeopleSoft.

"All PeopleSoft employees and customers are holding their breath -- waiting for November 19th to come and go," Mike Dominy, a principal analyst with The Yankee Group, told internetnews.com. "If Oracle walks away from the deal the momentum will shift, giving PeopleSoft renewed hope and energy. A comparable situation might be Game 4 of the ALCS this year when the New York Yankees could not defeat the Boston Red Sox. Failing to finishing off Boston in Game 4 gave Boston hope, which led to the historic comeback."

Instead of waiting for the stockholders, Oracle could submit a list of its own directors to replace the current board, which would have to happen before November 25. A bylaw in PeopleSoft's charter stipulates that any proposed board changes must occur at least 120 days before the anniversary of last annual shareholder meeting, which in this case was March 2003.

Oracle tried to stage a major board shift last year but withdrew its slate when the U.S. Department of Justice filed its antitrust lawsuit. If a proxy war were to emerge, it could potentially extend the so-called "OracleSoft" debate well into 2005. Analyst suggest if that were to happen, it might parallel what happened in the HP-Compaq merger before the Institutional Shareholder Services advised shareholders in favor of HP.

"We're still in a bidding war, and the PeopleSoft board has made it clear the problem is price, not any 'cultural war' about fighting a hostile takeover," Joshua Greenbaum, a principal analyst with Enterprise Applications Consulting, told internetnews.com. "I think the next week will see continued posturing and a possible sweetening of the pot by Oracle. Not by a lot, but enough to keep the pressure on big shareholders to follow the market and tender their shares. At this point the Oracle offer is what's keeping the stock hovering around $20 a share. The consensus on the street seems to be that the shares would drop significantly if the Oracle deal comes off the table."

With so much on the line, both companies have stepped up efforts to sway shareholders to their side. PeopleSoft said it begin meeting with investors this morning with a fresh presentation that includes financial forecasts for 2005.

"This company becomes more valuable every day and our board will continue to do what is right for the shareholders," company spokesperson Steve Swasey told internetnews.com. "Our board of directors believes that PeopleSoft is more valuable than the current offer by Oracle. It is like going after an all-star free agent with a salary cap."

Swasey also said PeopleSoft's $1 billion lawsuit against Oracle is still expected to start 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.

Oracle spokesperson Deborah Lilienthal would not confirm the meetings with PeopleSoft shareholders and declined to comment on the company's next move beyond its Nov. 19 deadline. Harry You, Oracle's chief financial officer, was quoted by Reuters as saying the Oracle has been, "on the road visiting PeopleSoft shareholders since Friday," (November 5) and will continue to do so until November 12.

Despite the uncertainty, analysts polled by internetnews.com agreed that enterprises should do nothing at this point.

"If Oracle really walks away from PeopleSoft, enterprises that have been loathe to make additional purchases of PeopleSoft products and services should go forward with purchase, upgrade and expansion plans," Yankee Group's Dominy said.

"I think that enterprise software customers are right now in a good position, almost regardless of who their preferred vendor is," Greenbaum added. "The upsell dollars represented by the PeopleSoft installed base, and the vociferousness of the battle between Oracle and PeopleSoft to capture those dollars, points to the extreme value existing enterprise customers have in the eyes of the vendor community. Regardless of whether you're an SAP, Oracle, or PeopleSoft customer, your loyalty -- in the form of upsell and maintenance dollars -- is worth more today than it ever was."