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.

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