| Oracle vs. PeopleSoft | KEVIN RESCHENBERG
09-13-2004 |
Last week's court decision rejecting the DOJ's antitrust claims
and clearing the way for Oracle to proceed with its takeover of PeopleSoft
probably wasn't a big surprise to anyone, but it certainly is
disappointing.
It's been 15 months (can you believe it?) since this started.
At first, many of us didn't believe the offer was genuine. We assumed
that Oracle was just trying to disrupt PeopleSoft's friendly takeover
of J.D. Edwards (which didn't happen), or to disrupt PeopleSoft's
business in general (which did). But if that was true at the time,
it appears that at some point Oracle decided it really wanted to
buy PeopleSoft and take out a competitor that Larry Ellison once
claimed he saw only in newspaper ads.
There are still some hurdles for Oracle to clear, but this case was
probably the biggest one. The DOJ could appeal the decision within
the next 60 days. The European Union could reject the merger.
I'll assume that neither of those will happen, or that even if an
appeal is filed, the outcome will be the same.
Other cases are pending. PeopleSoft sued Oracle for $1 billion over its unfair
business practices. That case goes to trial on November 1. Even if
PeopleSoft wins this one and collects the money, Oracle could get
control of the checkbook later anyway. $1 billion in extra cash might
cause a blip in the stock price, forcing Oracle to raise its offer
by a corresponding amount, but this all seems a little far-fetched to me.
Oracle has sued to overturn PeopleSoft's poison pill defense. This is a
provision that allows PeopleSoft to create additional shares during a
hostile takeover, instantly making the company far more expensive.
That case is set to go to trial on September 23. This poison pill
appears to be a strong defense, but it could crumble if the PeopleSoft
board is under pressure to negotiate with Oracle.
There is actually another type of poison pill. This is PeopleSoft's
very clever "Customer Assurance Plan", which promises two or more
times a customer's money back if a takeover happens and support for
the product is dropped within a specified timeframe. This deal was
offered to new customers and was later amended to specify Oracle
only (possibly to attract a white knight?). It has now created
liabilities of $1 billion or more. Oracle's reaction to this plan
has been interesting. While the company claims that it will support
the product for 10 years, it's whining about having to pay out refunds
under this plan, which is triggered only if support is dropped.
Oracle also complains that the board is not fulfilling its duty to
act in the best interests of the shareholders. Well, I think that
this plan is great for the shareholders if it brings in new business,
which it seemed to do very well.
PeopleSoft could reinstitute this program at any time, and I hope
that it does.
If Oracle can't get the board to drop its poison pills, it could launch
a proxy fight to elect directors to the board. But once again, there
is an obstacle. Even if Oracle could get enough proxies, PeopleSoft's
directors serve on staggered terms—so Oracle could not take control
in just one election.
Finally, Oracle needs to get the shareholders on board. Only about 10%
of the outstanding shares have been tendered so far, and it's been
a year of offers, changes in the offer price, and extensions.
Even with all of these obstacles, I'm very worried. Oracle could just
go on spreading FUD in order to drive down the stock price. Everybody has
a price, and the large institutions (including mutual funds) that
hold large blocks of PeopleSoft shares don't necessarily care that
Oracle wants to remove competition, shut down an excellent product
line and fire lots of people. If that happens, I hope that Oracle
is forced to pay a very large price.
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