Now that the European Union has approved Oracle Corp.s bid for PeopleSoft Inc., as anticipated, the only remaining hurdles are PeopleSofts poison pill, its Customer Assurance Plan and a potential proxy battle to gain control of the companys board of directors, according to legal experts.
"After the European Union cleared it, I dont think theres much left," said Donald Barnes, an antitrust specialist at Porter Wright Morris & Arthur LLP, in Washington. "The U.S. government has decided not to appeal [the loss of its antitrust case against Oracle], so the takeover bid is certainly cleared as far as U.S. antitrust authorities are concerned. … Oracle can certainly go ahead with its takeover."
But, as other merger experts have pointed out, Oracle may yet be stymied by the Delaware Chancery Court, which is expected to rule in the next two weeks on a civil trial brought by Oracle against PeopleSoft. In that trial, Oracle seeks to remove PeopleSofts CAP and poison pill anti-takeover measures.
"Were waiting on the Delaware trial," said Tom Burnett, president of Merger Insight, an affiliate of Wall Street Access Corp., in New York. "Depending on what [Judge Leo Strine] says, Oracle can go ahead right now. … Delaware can be a big hurdle, though. I dont want to underestimate that."
Trial observers said that the tea leaves are in fact pointing toward Judge Strine leaving some version of the CAP in place. "Judge Strine, speaking extemporaneously from the bench, commented that the current version of the CAP was better tailored to meet some of Oracles concerns," said Bill Lawlor, an attorney for Dechert LLP, in Philadelphia. "Its still unclear how he will rule, but by the nature of his comments Judge Strine seemed to be indicating that the CAP was not illegal. He also acknowledged the difficulties of dealing with a remedy in view of the innocent vendors."
Thats not totally unsurprising, Lawlor said, seeing as how Oracle did not have the CAP as a condition to its offer and, in fact, indicated that it didnt believe a successful takeover would trigger the CAP. "It removed some immediacy of the problem for the judge," he said.
Whats troubling about the CAP, from a legal perspective, are the staggering amounts that would be paid—up to $2 billion—if Oracle did not fulfill its stipulations of continued product support. But since they will unlikely be triggered, the CAP shouldnt preclude Oracle from completing the takeover.
As far as the poison pill goes, Lawlor said that the legal landscape around forcing revision of such provisions has been "fairly quiet" over the last 15 years. During the Delaware trial, PeopleSoft testified that if its board of directors has handled the pill inappropriately, Oracle could go ahead and wage a proxy battle to kick out the board at that time.
There also exists the potential for a lawsuit coming from dissident PeopleSoft shareholders, Barnes pointed out. "They can institute litigation arguing that the [PeopleSoft board] did not discharge its fiduciary duties in an appropriate manner and should have accepted the takeover bid," he said. "Theres still room for private litigation, depending on what the [final] Oracle offer is."
But, typically, a board of directors has considerable latitude in such matters, Barnes said. "Unless its an extremely lucrative takeover offer, the chances of a group of dissident shareholders suing their company and their board—the chances of prevailing on that are pretty slim."
PeopleSoft, meanwhile, is maintaining its stance regarding the Oracle bid as being hardly lucrative or fair. The Pleasanton, Calif., company said in a press release that its board is now reviewing the implications of the European Commissions decision. The statement reiterated PeopleSofts careful consideration and unanimous rejection of each of Oracles many offers, including its current offer of $21 per share, as being "inadequate." The company also pointed to its strong third-quarter financial results, which beat expectations, as proof that the offer undervalues PeopleSoft.
There is yet one more speed bump to Oracles successful execution of the takeover—namely, charges brought by PeopleSoft against Oracle. The two companies are scheduled to appear in court on Jan. 10, when PeopleSoft will seek compensatory damages in excess of $1 billion plus punitive damages from Oracle. The complaint in that case is that Oracle has engaged in unfair business practices, including a "deliberate campaign to mislead PeopleSofts customers and disrupt its business."
Legal experts see this trial as little more than pricing leverage as PeopleSoft executives strive to drive up the final offering price. "With the CEO changing of the guard [after PeopleSoft fired Craig Conway and reinstated founder Dave Duffield as CEO], the flexibility exhibited by some PeopleSoft directors in their depositions, and the regulatory obstacles now being cleared away, Id be surprised if serious price discussions do not develop. I think there will be a deal if Oracle is still genuinely committed to the process," Lawlor said.