Obstacles Mounting in Oracle Bid for PeopleSoft

European Commission extends its probe, while PeopleSoft strengthens a customer refund program.

Oracle Corp.s hopes of removing some obstacles to its $7.3 billion takeover bid for PeopleSoft Inc. evaporated last week as a European regulator extended its probe into the proposed action and PeopleSoft strengthened a customer refund program that could raise the cost of the purchase.

The European Commission announced that it will enter a second phase of its investigation into the proposed marriage of the second- and third-largest enterprise software companies. This phase will last four months and focus on the impact of Oracles proposal on the markets for business applications used by multinational companies, according to EC officials, in Brussels, Belgium.

Without a nod from the EC, a combined Oracle and PeopleSoft could not do business in Europe.

Separately, PeopleSoft, of Pleasanton, Calif., notified the Securities and Exchange Commission that it had amended its Customer Assurance Program, extending it through Dec. 31—the day Oracles offer to buy PeopleSoft shares expires.

The program already required Oracle to refund up to five times the license fees some customers paid if Oracle discontinued support of PeopleSoft software. The amendment would activate the refund by a change in PeopleSofts board of directors that results in an acquisition. This guards against the possibility that Oracle could gain seats on PeopleSofts board when elections are held next year.

The extended program in effect acts as a poison pill anti-takeover measure by making the deal potentially too expensive for Oracle to proceed, financial experts said.

Oracle, of Redwood Shores, Calif., is seeking an injunction from the Delaware Chancery Court to stop PeopleSofts refund program, which PeopleSoft said could cost Oracle about $800 million. However, its unlikely that the courts will side in Oracles favor, according to one attorney who specializes in corporate governance.

"I would be surprised if the courts forcefully rescind it," said John Connors, a lawyer with Shaw Pittman LLP, in New York. "Delaware does recognize a poison pill as legitimate. Its not just a business judgment."

Louise Brandy, vice president of business systems management at CB Richard Ellis Inc., is keeping an eye on the potential acquisition, particularly because she is a customer of Oracle, PeopleSoft and J.D. Edwards & Co., which PeopleSoft recently acquired.

"Were nervous," said Brandy, in Long Beach, Calif. "Were a good partner with PeopleSoft and have spent a lot of time and resources, and to have to start over again" would be extremely difficult.

"We love the [Oracle] database, but we dont have a strong relationship [with Oracle]. So to start all over is a little nerve-racking," Brandy said.

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