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Oracle-PeopleSoft, God Bless 'em, Turns into an Old-fashioned Donnybrook

Oracle-PeopleSoft, God Bless 'em, Turns into an Old-fashioned Donnybrook

Oracle raised its bid for PeopleSoft, the company it's pursuing with a hotfooted hostile tender offer, from $16 a share to $19.50 Wednesday morning in an attempt to woo PeopleSoft stockholders to its side.

The move raises the value of Oracle's bid from $5.1 billion, which was widely regarded as parsimonious, to $6.3 billion. The amount, Oracle CFO Jeff Henley pointed out, is a 29% premium over where PeopleSoft stock was before Oracle announced its run on the company on July 6, 48% if the $2 billion that PeopleSoft has in the bank is discounted.

The question still remains whether Oracle thinks PeopleSoft is really worth another billion dollars or it's just trying to mess with PeopleSoft's business. Oracle insists it's serious. If it is, it may have to go a couple of bucks higher.

Oracle also filed suit in Delaware, where corporate goverance is sorted out, challenging the deal between PeopleSoft and JD Edwards that PeopleSoft restructured Monday morning turning half of its all- stock offer for JDE into cash and sprinkling a little powder sugar on the thing by dolloping out another $50,000. The value of the total transaction is now at $1.75 billion.

PeopleSoft and JDE said they were trying to accelerate their transaction and close the deal in Q3, a few weeks earlier perhaps than originally anticipated.

The actual point of the new terms is that new equation means PeopleSoft can bypass Nasdaq regs requiring a shareholders vote, which Oracle was counting on to reach out to them. Oracle claims the JDE merger terms were changed simply to entrench management and asked, "If PeopleSoft's board is so convinced that the JD Edwards acquisition is a great, why won't it let their shareholders vote on it?"

More important, Oracle needs PeopleSoft to drop its poison pill for its offer to be valid. As it is, Oracle hasn't even been able to get in to talk to the PeopleSoft board, although the board, which rejected Oracle's first bid out of hand, grudgingly agreed to consider the offer after Oracle increased it. PeopleSoft told stockholders it would make its recommendation "in due course" and not to do anything beforehand.

Meanwhile, PeopleSoft has gotten the state of Connecticut on its side. Connecticut, which is installing $111 million worth of PeopleSoft software and is worried it'll have to spend millions to replace it, is going to sue Oracle for antitrust to nip its tender in the bud. Shades of the Microsoft antitrust trial, state Attorney General Richard Blumenthal mumbled something about "assembling a powerful coalition of states" and trying to get the Justice Department to come down against Oracle.

Anyway, Oracle has managed to meet with the institutions that own a majority of PeopleSoft stock - folks that also own Oracle, Henley said - and claimed that they "endorsed [Oracle's] strategy and concept" - at the higher price of course. That price is widely suspected of being negotiated and still being insufficient to win the day. The cynical say it's just enough to make Oracle look sincere and ultimately walk away after throwing a monkey wrench into PeopleSoft's business.

See, because of the Oracle raid a lot of PeopleSoft's 5,000 customers are believed to be waiting until the smoke clears to sign contracts and it's increasingly possible PeopleSoft won't make its quarter, making it look all the more like takeover material.

Reports say things are so bad PeopleSoft is guaranteeing customers their money back if Oracle succeeds to get them to sign contracts. Henley said he had heard "rumors" of such a thing and described it as "egregious" if true. Oracle is suing to get PeopleSoft to stop such deals.

PeopleSoft itself said its own JDE sweetener was partially intended to "minimize customer uncertainty" that Oracle will be run off and that the PeopleSoft-JDE nuptials will go though.

Before Oracle upped its bid, the Wall Street Journal figured Ellison was "simply trying to damage PeopleSoft by scaring off potential customers, in the process sabotaging a merger PeopleSoft had in the works that would make [it] more threatening than Oracle."

The paper reckoned the dead giveaway was Ellison's avowed intent to "cancel PeopleSoft's product line and thus force everyone to move to Oracle. That's the tip-off that he can't possibly be serious," it said.

"Getting this sort of corporate software up and running usually requires spending millions of dollars on engineers who customize the software for the peculiarities of each business. Often, these 'implementation' efforts fail completely. Indeed, Oracle's own corporate software has a long, rich tradition for being buggy and hard to work with.

"Mr Ellison now is telling PeopleSoft customers that they will soon have no choice but to start a lengthy, painful and risky process all over again. Who in their right mind would buy PeopleSoft with that cloud in their future?"

For the record, a PeopleSoft takeover is supposed to make Oracle more competitive with Microsoft and SAP even though Oracle also argues that PeopleSoft's position in the market is rapidly declining and that the software business, where consolidation is long overdue, needs to adopt economies of scale.

What Oracle would be doing is simply buying PeopleSoft customers on the theory that it could eventually get them to trade off to Oracle's e-business suite.

Oracle claims its acquisition of PeopleSoft would turn accretive in a year - naturally it would gut the place, keeping only support and developers - and that PeopleSoft accounts would be supported until next-generation Oracle software, integrated with PeopleSoft features, arrives. Henley says Oracle would get PeopleSoft's maintenance and support revenues at the sacrifice of licenses and training revenues. He called the plan "conservative and logical."

Oracle's tender is currently due to close on Monday, July 7, though of course it can be extended. If Oracle fails to prevail in court, and there's absolutely no assurance that it will, and it sticks to its guns, it could take a year to bring its offer to a stockholders vote. In the meantime, Oracle is passing out a PeopleSoft phone number urging stockholders to call and complain. A bunch of stockholder suits against PeopleSoft has already been filed.

The PeopleSoft tender started Thursday morning and is supposed to run until July 17. Oracle's started June 9.

Meanwhile, PeopleSoft, which like JDE is suing Oracle to get it off its back, has placed ads in vehicles like the New York Times and the Financial Times asking customers to "Show your support for PeopleSoft by moving ahead with your planned purchases of PeopleSoft products this month." Everybody's fighting now for the hearts and minds of the shareholders.

Naturally shareholders very often prefer cash to stock. According to the amended agreement, PeopleSoft would have to dig into its jeans and count out $863 million in cash money. Shareholders can have cash and/or stock. PeopleSoft is now supposed to issue 52.6 million new shares for JDE's 122.4 million, giving JDE 14.3% of the company.

The pair has also had a rethink about their "synergy estimate" and say that they now figure they can save $150 million-$200 million if they were combined. Previously the number was $80 million, which Oracle CEO Larry Ellison criticized as picayune.

Oracle's actions have succeeded in raising doubts about the wisdom of the JDE acquisition and the depth of the synergy between PeopleSoft and JDE. JDE, Henley noted, only had an operating margin of 11% at the height of the boom. More usually it's in the single digits.

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More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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