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Oracle to Buy PeopleSoft for $10.3B

UPDATE: Oracle's dogged pursuit of PeopleSoft was rewarded on Monday as PeopleSoft's board of directors agreed to sell the company for $10.3 billion. The announcement ends a long legal fight over the rights to the business application giant.

Oracle will pay $26.50 per share for its rival, higher than its last bid of $24. The deal is expected to close in early January, capping off 18 months of tense legal battles and market unrest that shook PeopleSoft.

"After careful consideration, we believe this revised offer provides good value for PeopleSoft stockholders and represents a substantial increase in value from October," said A. George "Skip" Battle, chairman of PeopleSoft's Transaction Committee. Battle also thanks PeopleSoft employees for sticking through the unstable conditions precipitated by the hostile merger.

The deal heads off a Delaware court meeting this week in which PeopleSoft was expected to answer questions from Delaware Chancery Court Judge Leo Strine about the company's "poison pill" and customer rebate provisions.

The judge was also expected to ask why PeopleSoft's board continues to hold out for more money after a poll of shareholders found 61 percent would be happy to sell the company for $24-per- share.

PeopleSoft's acquiescence renders further court proceedings moot. The two companies agreed to stay all pending litigation, including PeopleSoft's $1 billion civil lawsuit against Oracle scheduled for next month until the consummation of the deal. All litigation will be thrown out should the merger succeed, the companies said.

Oracle CEO Larry Ellison said in a statement he expects the purchase to be 1 cent accretive in the fourth quarter of fiscal year 2005, about 2 cents a quarter, or 8 cents per year, in 2006, and a bit more in 2007.

"Today we announced both a great quarter and the agreement to acquire PeopleSoft," Ellison said, noting that Oracle's applications business grew 57 percent in its most recent quarter. "This merger gives Oracle even more scale and momentum."

Ellison also promised to extend support for PeopleSoft customers worldwide. The Redwood Shores, Calif., company will enhance PeopleSoft 8 and develop a PeopleSoft 9, as well as enhance JD Edwards 5 and develop a JD Edwards 6.

Oracle's latest offer will expire at midnight EST on Dec. 28.

"I'm surprised they paid as much as they did, but there was a sense that they want to move faster in the market, Philip Fersht, an analyst with Yankee Group told internetnews.com. "They are taking on SAP and there was a feeling that they needed to get this thing closed. It also became a personal thing for Larry Ellison and to back out now would have been disappointing."

In related news, Oracle reported second quarter earnings of 16 cents per share, compared to 12 cents for the same period last year. Net income grew 32 percent to $815 million in the quarter; revenues were up 10 percent to $2.76 billion.

For the third quarter, Oracle expects revenue to total $2.7 billion to $2.79 billion on 14 cents to 15 cents per share.