Oracles Field of Play

With the refusal of PeopleSoft's board of directors to accept Oracle's "best and final" tender offer, the acquisition is once again in the air and with no landing zone in sight.

With the refusal of PeopleSoft Inc.s board of directors to accept Oracle Corp.s "best and final" tender offer last week, the acquisition is once again in the air and with no landing zone in sight.

Although Oracle has given PeopleSoft shareholders until midnight Friday to tender their shares or else it will withdraw its updated offer of $24 per share, some say it may not be Oracles final word. And while PeopleSoft executives announced plans to push on in the Pleasanton, Calif., companys fight for independence, it is fairly certain shareholders will welcome the offer and force a proxy fight.

"PeopleSoft showed its hand of cards, and now its up to Oracle. They can either offer $27 a share, or they can refuse" to go any further, said Bruce Richardson, an analyst with AMR Research Inc., in Boston. "Oracle has spent a lot of time on this. Its been a huge distraction and waste of money on both sides. I wouldnt be surprised if they walked away now, but maybe not for good." Oracle could, theoretically, wait for PeopleSofts share to drop and come back with another, lower offer, according to Richardson.

/zimages/2/28571.gifClick here to read more the waiting game that former J.D. Edwards & Co. customers are playing.

And even if more than 50 percent of PeopleSoft shareholders tender their shares by Friday, Oracle would not own the company, according to PeopleSoft executives. PeopleSofts board would still have to agree to remove its poison pill and CAP (Customer Assurance Program) anti-takeover measures.

To that end, PeopleSoft and Oracle are awaiting a court decision in Delaware Chancery Court, which heard last month a case brought by Oracle requesting that the court dismantle the PeopleSoft programs.

Despite its overtures of independence, PeopleSofts board has every expectation that at least 50 percent of the companys shareholders will tender their shares to Oracle. The board also believes that when that happens, the Redwood Shores, Calif., company will, in turn, wage a proxy battle for PeopleSofts board in the spring and attempt to nullify the poison pill and CAP by installing its own, hand-picked board.

"As we move into a proxy fight, which we certainly see in our future, we believe we have the ability to perform," said Phil Wilmington, PeopleSofts co-president, in a conference call with analysts and press last week.

Kevin Parker, PeopleSofts co-president and chief financial officer, said the board based its decision to refuse Oracles latest offer on PeopleSofts strong third quarter and equally strong outlook for this quarter and next year. Guidance for this quarter includes $700 million to $715 million in total revenue and $175 million to $185 million in license revenue. Guidance for next year includes revenues of $2.8 billion to $2.9 billion and license revenues of $640 million to $655 million.

"We are a vibrant, strong company with a focused, motivated management team and employee base dedicated to executing on the companys plan," said PeopleSoft founder, Chairman and CEO Dave Duffield. "PeopleSoft will continue to deliver shareholder value by extending our current product leadership, building new products, entering new markets and continuing to deliver the very best customer service in the industry."

Tad Piper, an analyst with Piper Jaffray & Co., said in a note last week that if PeopleSoft can deliver on its new guidance, Oracles current $24-per-share offer for PeopleSoft is not adequate. "We maintain our view that the deal can still be accretive to Oracle in the low $30s but believe that Oracle may walk away believing that the opportunity cost of other potential acquisitions is too great," said Piper, based in Menlo Park, Calif.

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