Bolstered by investors, Oracle Corp. appears destined to complete its long-sought takeover of PeopleSoft Inc. unless its rival becomes more profitable and proves it is worth more than the $9.2 billion bid currently on the table.
The owners of about 61 percent of PeopleSoft’s stock implicitly endorsed Oracle’s latest $24-per-share offer by tendering their shares before a pivotal weekend deadline. Had most of the shareholders followed the advice of PeopleSoft’s board and withheld their shares, Redwood Shores, Calif.-based Oracle planned to rescind its all-cash offer and end a 17½-month quest.
Despite the shareholder rebuff, PeopleSoft isn’t ready to surrender because its board believes the business software maker is worth at least $2 per share — nearly $800 million — more than its rival’s current offer.
On Saturday, PeopleSoft’s board of directors again unanimously concluded that Oracle’s latest bid was inadequate, continuing to insist that most of the company’s largest stockholders don’t think the offer reflects the company’s real value.
“This majority is comprised of stockholders who did not tender their shares, as well as stockholders who tendered but told us that they believe PeopleSoft is worth more than $24 per share,” George “Skip” Battle, the lead director on PeopleSoft’s transaction committee, wrote in a letter to Oracle executives.
It marked the sixth time that PeopleSoft’s seven directors have snubbed its bitter rival since the takeover battle began. Unless Oracle raises its offer, PeopleSoft’s board has signaled it is ready to fight until shareholders take a more definitive vote on the bid at the company’s annual meeting next spring.
Sounding exasperated, Oracle chairman Jeffrey Henley urged PeopleSoft’s board to capitulate in a letter released Monday. “Your shareholders have more than a year and a half to evaluate our offer relative to your stand-alone plan and they have chosen Oracle’s offer,” Henley wrote.
Despite the continuing impasse, investors still seem to expect the deal to get done. PeopleSoft’s shares gained 14 cents Monday to $23.31 on the Nasdaq Stock Market, where Oracle’s shares fell 19 cents to $12.56.
'Poison-pill' defense
Pleasanton, Calif.-based PeopleSoft can still hold out because it remains armed with an antitakeover measure known as a “poison pill” to thwart Oracle’s advances. If Oracle acquires a 20 percent stake in PeopleSoft, the company can trigger the poison pill to flood the market with new shares to make a takeover prohibitively expensive.
Oracle is prepared to ask a Delaware judge to remove the poison pill in a Wednesday hearing. The chances that Judge Leo Strine will grant Oracle’s request are considered remote, setting the stage for the Silicon Valley soap opera to continue until PeopleSoft’s annual meeting, which still hasn’t been scheduled.
If PeopleSoft’s poison pill remains intact and the company’s board remains intractable, Oracle will have to lobby PepleSoft shareholders to vote for a slate of directors who support the takeover bid.
PeopleSoft is betting that it will be able to deliver financial results well above analyst expectations before the annual meeting to impress shareholders.
If that happens, PeopleSoft stands a good chance of persuading shareholders it’s worth more than Oracle’s offer. Analysts say Oracle would then have to raise its bid or finally give up the hunt.
But if PeopleSoft’s sales sputter, shareholders almost certainly will vote in favor of an Oracle takeover to finally seal the deal.
“PeopleSoft has definitely put itself in a tough spot,” American Technology Research analyst Donovan Gow said. “They are going to be under a lot of pressure to deliver.”
The often-vicious battle already has taken a heavy toll beyond the $169 million that the two companies have combined to spend fighting each other so far.
Warding off Oracle has required PeopleSoft to divert resources and management attention from its own business as it navigated through its own takeover of J.D. Edwards & Co. PeopleSoft is so convinced that Oracle’s bid represents malicious mischief that it is suing for more than $1 billion in damages in a trial scheduled to begin Jan. 10.
Oracle’s sales and stock price also has suffered during the takeover saga. What’s more, Oracle has had to delay other possible acquisitions while it continued to stalk PeopleSoft — the most prized company on its shopping list.
Some industry observers believe Oracle and its flamboyant CEO Larry Ellison — the mastermind behind the takeover bid — should give up on buying PeopleSoft if a friendly deal isn’t worked out soon. That way, Oracle could use its $9.4 billion in cash to buy other attractive software acquisition candidates, such as BEA Systems Inc.
“Larry should just give up and walk away at this point,” said Salesforce.com CEO Marc Benioff, a former Oracle executive who worked closely with Ellison. “He has already done enough damage to PeopleSoft.”
But analysts believe a combination of ego and PeopleSoft’s high value to Oracle will extend the takeover tug-of-war. The company already has demonstrated its resolve by overcoming the federal government’s antitrust challenge to the proposed deal in a court trial — another victory that has yet to pay dividends.
“Oracle has always been playing for keeps in this thing,” said Joshua Greenbaum, principal analyst with Enterprise Applications Consulting. “I think Larry definitely will keep going ’whole hog’ after PeopleSoft.”