Oracle Demands Changes to PeopleSoft Program

Oracle asks court to curtail PeopleSoft's Customer Assurance Program.

Despite Oracle Corp.s assurances that it intends to go through with its $7.3 billion hostile takeover bid for enterprise software rival PeopleSoft Inc., observers are getting a look at possible ways the deal could unravel.

Oracle last week amended its filing in a Delaware court, asking that PeopleSoft be forced to curtail a rebate offered as part of its Customer Assurance Program because it could be prohibitively costly to Oracle should the acquisition go through. If the plea is rejected, Oracle could use the cost of the program as a reason for canceling the offer, observers said.

If that doesnt sink the deal, regulatory bodies in the United States and Europe could. Both groups are considering whether a union of the second- and third-largest enterprise application companies would violate antitrust laws.

The European Commission is expected to comment on the transaction this week. Observers assume that the EC will hold off on releasing a decision on whether to allow the deal to go through in Europe until the U.S. Department of Justice makes its decision.

Officials at the DOJ would not say when they will make a decision on whether to block the deal.

Oracles offer to buy PeopleSoft shares expires Dec. 31.

Oracle, of Redwood Shores, Calif., originally filed suit against PeopleSoft last summer in an attempt to have the Pleasanton, Calif., company remove the so-called poison pill anti-takeover provision in its bylaws.

PeopleSoft initially enacted its Customer Assurance Program in June, after Oracle CEO Larry Ellison was quoted in the press as saying he would discontinue support of PeopleSofts software should the acquisition prove successful. Last month, PeopleSoft modified that program to include refunds for customers between two and five times the "total arrangement fees"—language that could, in the end, include such expensive line items as implementation, integration and consulting fees.

PeopleSoft officials contend that the assurance program is of no consequence to Oracle because even if the company is successful in its acquisition attempt, Oracle said it would maintain support of PeopleSofts product line.

Ed Hansen, an attorney who helps customers negotiate technology purchases, said the assurance program is not only good business, its a necessity. Because software deployment can cost three times that of the license, Hansen makes it standard practice to negotiate some sort of assurance plan so buyers will know they wont have to replace the software for five or 10 years.

"The issues you face in a merger are the same issues you face anyway," said Hansen, a partner in the New York firm Shaw Pittman LLP. "You want to make sure the vendor is going to maintain the product for a number of years, that theyre going to bring it up-to-date, with localizations. You want to make sure the feature functionality remains consistent with whats available in the marketplace."