Business software maker Oracle Corp. may be forced to drop its hostile bid for PeopleSoft Inc., saying its rival’s generous offer of customer refunds if the deal goes through amounts to nothing less than an antitakeover measure.
IN A STERNLY WORDED court filing, Oracle demanded that Pleasanton, Calif.-based PeopleSoft stop its “Customer Assurance Program, which guarantees customers will receive refunds of two to five times their initial license fee — often tens of millions of dollars or more — if an acquiring company fails to support PeopleSoft products.
In the motion filed Monday with the Delaware Court of Chancery requesting a preliminary injunction against the program, Oracle criticized the program as so “draconian” and “unreasonable” that it could make the takeover “unfeasible.”
PeopleSoft began offering customers generous refunds shortly after Oracle began its takeover bid in June. At that time, PeopleSoft said the program affected only $60 million in sales — a tiny fraction of Oracle’s $7.3 billion takeover bid.
Redwood Shores-based Oracle said in the motion it became aware that the program could cost as much as $800 million only during PeopleSoft’s third-quarter earnings conference call on Oct. 27. In court filings, Oracle characterized the increase as “startling.”
Oracle executives, who are offering to buy PeopleSoft for $19.50 per share, have repeatedly said the company would support some versions of PeopleSoft products for 10 years, but they don’t intend to sell PeopleSoft products to new clients or develop new products under the PeopleSoft brand. The court filing alleged that PeopleSoft’s refund was little more than a poison pill to ward off an unsolicited suitor.
“PeopleSoft’s management’s entrenchment tactics continue to destroy the value of the company for its shareholders,” Oracle spokeswoman Jennifer Glass said Tuesday.
PeopleSoft executives, who announced a takeover of Denver-based J.D. Edwards only days before the Oracle bid, worry that Oracle could migrate PeopleSoft customers to Oracle products.
PeopleSoft spokesman Steve Swasey defended the refunds Tuesday, calling the program a “prudent measure.” He noted that, even if Oracle acquired PeopleSoft, it wouldn’t have to dole out refunds unless it stopped supporting PeopleSoft products.
He also emphasized that the program itself has not increased sales of PeopleSoft software.
“The Customer Assurance Program is not the reason people are buying PeopleSoft, just like you don’t buy a new house because it comes with fire insurance,” Swasey said.
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