Oracle's message to PeopleSoft: Our offer is “serious”

Software giant pushes ahead with hostile takeover bid, SAP plans marketing blitz aimed at PeopleSoft and J.D. Edwards customers
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|hrreporter.com|Last Updated: 06/12/2003

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oftware maker Oracle Corp. is pushing ahead with its hostile takeover bid for rival PeopleSoft Inc. despite legal threats and pressure from PeopleSoft shareholders for a better deal.

The two companies have an acrimonious relationship that has been marked by sniping between the two chief executive officers — Oracle’s Larry Ellison and PeopleSoft’s Craig Conway. Conway worked under Ellison at Oracle from 1985 to 1993.

PeopleSoft has reacted negatively to Oracle’s effort to swallow the company, and Conway has called Oracle’s offer “horrifically unprofessional.”

Conway said rival Oracle is simply trying to ruin PeopleSoft’s proposed $1.8-billion merger with J.D. Edwards and Company.

“I think (Ellison) saw a wedding and he showed up with a shotgun because he didn’t get invited,” Conway told the

Associated Press.

“It’s a page straight out of Genghis Kahn.”

In a sternly worded letter to Conway, Ellison said the offer is a serious one and requires a full review.

“Your press release, quotes attributed to you in the press, and a notice we just received with respect to your intention to commence litigation against us raise the concern that you have taken a negative position with respect to the merits and motivations behind our offer before you and the PeopleSoft board have taken the time required to consider the offer.

“We have made a serious, fully financed, all-cash offer to your stockholders, and your fiduciary duties to those stockholders require a full and fair review done in good faith. This matter will ultimately be decided by the PeopleSoft stockholders based on the merits and not by frivolous litigation. I reaffirm our request that you redeem your poison pill to enable stockholders to act on our offer, and I expect that the board will not take any further action that would interfere with the rights of PeopleSoft stockholders to determine the outcome of this process,” the letter stated.

Ellison said Oracle has received notice of PeopleSoft’s intention to file suit in response to the hostile bid, but did not mention any details of the threatened suit in his letter to Conway.

The CEO for J.D. Edwards has also weighed in on the side of PeopleSoft, arguing that Oracle’s bid could violate American and European antitrust laws.

“It would eliminate a competitor, to the detriment of customers, who would have diminished options,” said Bob Dutkowsky, CEO of J.D. Edwards. “This harm to customers is what anti-trust legislation is designed to stop, and accordingly the transaction could be blocked.”

PeopleSoft and J.D. Edwards signed a merger deal, worth about $1.8 billion (all figures U.S.) in stock. Days later Oracle announced its plans to take over PeopleSoft with a $5.1 billion cash offer to purchase all remaining shares for $16. Oracle said if its bid for PeopleSoft succeeds, it will review the deal with J.D. Edwards. The merger between J.D. Edwards and PeopleSoft would have moved them ahead of Oracle in terms of market share.

The original offer by Oracle of $16 per share was a six per cent premium over Friday’s close of $15.11 for PeopleSoft shares. The price of shares has since jumped, opening Tuesday at $17.95, which shows investors are expecting Oracle to up the ante in its bid. Some speculation has it that Oracle would need to up its offer to $19 to succeed.

What would a takeover mean for PeopleSoft’s customers?

Oracle has made it clear PeopleSoft will cease to exist as a separate company and a brand if the takeover is successful.

Ellison said Oracle would continue supporting PeopleSoft 7 beyond what PeopleSoft had originally planned. According to Oracle, PeopleSoft was planning on dropping support for version 7 by the end of 2003.

“That’s forcing customers to upgrade to the next generation of PeopleSoft, PeopleSoft 8, sooner than they might want to,” said Ellison. “So we think choice is a good thing. We’re going to extend that support and let them make an upgrade at a time of their choosing.”

He said customers would still have the option of moving from PeopleSoft 7 to PeopleSoft 8, and stressed they wouldn’t be forced to switch to Oracle software.

“We’re not going to charge additional license fees from moving from PeopleSoft 7 to PeopleSoft 8, nor will we charge an additional license fee if they choose, and I emphasize if they choose, to migrate from PeopleSoft 7 to the Oracle E-Business Suite,” said Ellison. “But that will also be an option and one in a series of upgrade steps to make that easy and graceful.”

He said the support staff from PeopleSoft will be moved into the Oracle organization and will focus on two things.

“The PeopleSoft developers will continue to make improvements and keep the PeopleSoft products current,” he said. “If the customers elect to stay with the PeopleSoft products, we will continue to keep those current.”

They will also add features to Oracle’s products to make the move from PeopleSoft to Oracle easier for customers. He said upgrading from PeopleSoft 7 to PeopleSoft 8 is a major effort for many organizations, and he doesn’t anticipate the switch from PeopleSoft to Oracle to be any harder.

“If our top developers and PeopleSoft developers get together, we can make that a very simple upgrade,” he said. “It’s certainly as easy as going from PeopleSoft 7 to PeopleSoft 8, moving to Oracle products. We think it will be a graceful upgrade. It wouldn’t be a conversion… it wouldn’t be a massive consulting effort.”

How PeopleSoft can fight the bid

PeopleSoft has hired a number of groups and a law firm to help plot its strategy to fight the Oracle bid.

It also has a number of strategies already in place that could make a take over bid less attractive. It has staggered elections for its board of directors, which means anyone buying the firm would be unable to stack the board with new members.

It also has a so-called “poison pill,” which could make any hostile takeover extremely expensive. It would allow PeopleSoft to issue new stock in case a company, such as Oracle, buys up too much in a hostile bid.

Don Johnston, a principal at Broadview International, a consulting firm specializing in technology mergers and acquisitions, told the

San Francisco Chronicle

that this gives opposing shareholders more power to kill the deal and allow them to buy shares in the newly combined company at a deeply discounted rate. But he said poison pills aren’t used very often.

“More often than not, the poison pill is an effective deterrent, but not always,” Johnston said. “Because at the end of the day, if Oracle is making an attractive price and shareholders want that money, they’ll pressure the board to rescind the pill.”

What SAP is planning

Meanwhile, Germany-based software giant SAP is planning a marketing blitz this week, aimed at customers of PeopleSoft and J.D. Edwards, in an attempt to capitalize on the turmoil caused by Oracle’s bid.

SAP is planning on putting together special offers that will allow customers who use PeopleSoft and J.D. Edwards to trade their software licenses against MySAP enterprise resource planning licenses.

Leo Apotheker, an SAP board member and head of global field operations, said his company isn’t threatened by either of the Oracle-PeopleSoft or PeopleSoft-J.D. Edwards deals.

“If Oracle succeeded, they would have to show their shareholders a return. If they wanted to launch a price war, they would run out of cash,” said Apotheker. “If the bid failed, it would have pointed out a number of weaknesses in the PeopleSoft structure.”

Apotheker also said SAP could use the takeover bid as an opportunity to poach top talent from PeopleSoft who might be concerned about their future. He said while takeovers in the software world are rare, he wasn’t surprised at Oracle’s move.

“Software companies do not make hostile bids,” said Apotheker. “Execution is very difficult. On the other hand, a merger of PeopleSoft and J.D. Edwards would have left (Oracle) a distant number three, so they had to be concerned.”

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