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
(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
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
in and not withdrawn from the offer.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 “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
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
Applications Consulting, told “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
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
forecasts for 2005.

“This company becomes more valuable every day and our board will
continue to do what is right for the shareholders,” company
Steve Swasey told “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

Oracle spokesperson Deborah Lilienthal would not confirm the
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
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,”
added. “The upsell dollars represented by the PeopleSoft installed
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.”

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