Oracles Surprise PeopleSoft Price-Cutting Surprises Nobody

By Lisa Vaas  |  Posted 2004-05-18

Oracles Surprise PeopleSoft Price-Cutting Surprises Nobody

When Oracle on Friday slashed the pile of money its willing to hand over in its hostile takeover of PeopleSoft, bringing the offer down nearly 20 percent to $21 per share, some in the press called it a "surprise move."

Surprising, no. One more sign that the takeover is doomed, yes.

Its unsurprising, of course, because it matches PeopleSofts falling stock price. In the increasingly unlikely scenario of Oracle actually winning antitrust charges brought by the European Commission and by the U.S. Department of Justice, why in the world would the company want to wind up paying $26 per share for PeopleSoft, whose stock has been trading in the $16-to-$17-per-share range? Anyway, as Oracle Chief Financial Officer Jeff Henley pointed out in the statement put out on Friday, the offer still offers a hefty premium on the going stock price.

PeopleSoft CEO Craig Conway has blamed Oracles dogged pursuit for spoiling the companys sales. The companys first-quarter revenue of $643.1 million fell short of analyst expectations, marking the first time that PeopleSoft has missed estimates since Oracle launched its hostile takeover attempt last June.

Conway may well be right, and hes probably on target when he characterizes Oracles never-say-die takeover attempt as being little more than a campaign to frighten off customers. SAP AG, by far the biggest enterprise software vendor in the PeopleSoft-Oracle-SAP triangle, sees it that way, even though the company has voiced support for Oracles view of what constitutes the marketplace. Back in February, when SAP America CEO Bill McDermott was keynoting at the Wharton Schools Technology Conference, he took a moment to humorously gloat over the situation: "I need to get Mr. Ellison on all my holiday card lists and thank him for disrupting the marketplace," McDermott said at that time.

Next page: Was disruption the main intention?

Market disruption

Yes, Oracle has done a fine job of disrupting the marketplace. And its starting to look more and more like thats all the company intended in the first place. Although with this new, unsweetened offer Oracle also extended the time in which shareholders can sell their shares, and in spite of the fact that the offer still represents a 20 percent premium over the going stock price, the fact of the matter is that the smaller the cash pile, the harder it will be to convince an already recalcitrant PeopleSoft board and stockholder base that the takeover is a good thing.

In the meantime, theres been at least one Oracle executive quoted in the press as saying that he thinks the deal is, for all intents, dead. The LA Times quoted Henley as saying that Oracles chances for success in the venture are "not highly probable" although the company is "not done with PeopleSoft" yet.

Not done with trying to acquire PeopleSoft, or not done with skewering as many customer sales as possible? After all, does Oracle really expect to win in its fights against the DOJ and the European Union? At this point, few analysts expect it to prevail.

Click here to read my take on whether Oracles PeopleSoft bid falls under the definition of antitrust.

Not to say that I agree with the DOJs definition of the market—I think Oracles definition is far more accurate, particularly with Microsofts Great Plains acquisition and the potential it has for being a major player—nor that there arent many Oracle higher-ups who believe wholeheartedly in Oracles battle. Ive spoken with one high-up Oracle insider—off the record—whos close to the legal battle, and his description of the market and the judges initial reactions during the discovery phase was enough to convince me that the DOJ might face some difficulty in proving its market definition come the trial, which starts on June 7. (But then, high-up Oracle executives would really, really want to convey that impression to journalists, eh?)

Next page: Analysts always hated the deal.

Deal was never to

analysts liking"> At any rate, many analysts have always hated the deal. Tom Burnett, president of Merger Insight, an affiliate of the New York research and brokerage firm Wall Street Access, told me his firm just never could understand why Oracle would "ruin its balance sheet" to take on all the liabilities tied up in PeopleSofts customer assurance plan, which has been pegged at carrying a potential price tag of between $1 billion to $2 billion if customers cash in on the rebate plan.

"They have a nice balance sheet of cash," Burnett told me. "I dont know why they dont buy back their own stock instead of trying to go out and buy PeopleSoft."

Thats a common refrain when it comes to the idea of Oracle assuming responsibility for PeopleSofts customer assurance plan. And at this point, with Oracle souring its offer price and publicly expressing gloom and doom over its chances of successfully acquiring PeopleSoft, we might well consider the possibility that the company never had serious intentions of getting into the guts of that customer assurance plan in the first place. In the meantime, PeopleSoft well-wishers can just cross their fingers and hope that potential customers can weather the storm that all this Oracle wind has wrought.

Please register for TalkBack below and tell me and other readers what you think, or write to me at Database Center Editor Lisa Vaas has written about enterprise applications since 1997.

Check out eWEEK.coms Database Center at for the latest database news, reviews and analysis.

Be sure to add our database news feed to your RSS newsreader or My Yahoo page

Rocket Fuel