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Following Oracle Corp.s recent legal victory in its fight to engulf PeopleSoft Inc., financial analysts can only agree on two things: that Oracle will likely sweeten its offer, and that its pockets are deep enough to give it plenty of staying power and negotiating room.
For one, Minneapolis-based Piper Jaffray & Co. is maintaining its “outperform” rating on PeopleSoft stock. Software analyst Tad Jaffray said in a release that the firm believes PeopleSofts business will continue to drag for the foreseeable future and that the company will be forced to consider negotiating on Oracles current $21-per-share offer, which it called “a starting point” for negotiations.
On the other hand, John Torrey, vice president of equity research for Adams Harkness, in San Francisco, said in a release that PeopleSoft investors have two choices: hang on to the stock and expect that Oracle will sweeten its offering price, or sell now in order to lock in profits in the expectation that Oracles takeover bid will stumble as it continues to battle remaining hurdles.
“We recommend the latter response, as we believe there remain substantial, if not insurmountable, hurdles to the successful completion of this deal,” Torrey wrote.
Torreys reasoning is based on a refusal to “underestimate the European Commissions ability to cripple this deal independent of this trial verdict, both because SAP [AG] is extraordinarily strong in Europe and because history (e.g., the Microsoft anti-trust case) teaches us that the EC is willing to act much more forcefully than the DOJ or US courts,” he wrote.
Paul Hamerman, an analyst for Forrester Research Inc., in Cambridge, Mass., disagrees with Torrey when it comes to Oracles chances with the European Commission. “I think Oracle can probably get past the EC, because SAPs clearly more dominant in Europe than in the United States,” he said.
Opinions are also mixed on whether the Justice Department will appeal the verdict. Torrey, citing contacts within the Anti-Trust Division, says that he believes theres fight left yet within the DOJ. Forresters Hamerman, on the other hand, said that Judge Vaughan Walkers decision in the DOJ vs. Oracle case was “very well-written.”
“I think an appeal probably wont get far,” he said.
As far as PeopleSofts poison pill goes, Torreys firm expects PeopleSoft to cling to the provision, in which a hostile takeover attempt would trigger a cost-prohibitive customer assurance plan designed to hobble Oracle and its ilk.
At the bottom of all this conjecture, however, lies an empirical fact: namely, Oracles extremely deep pockets. Piper Jaffray expects Oracle to have close to $10 billion in cash on the balance sheet by years end. The companys standing line of credit is near $5 billion. Bob Quinn, research director and senior portfolio manager at Boston Private Bank & Trust Co., said that Oracle has some $8.6 billion in cash, working capital of $7.1 billion and not much in the way of long-term debt—all of which mean that Oracle has room to wiggle on its offering price and can afford to do battle for some time yet.
“Theyve got the capacity to push the price up, certainly,” said Quinn, in Boston. “Everybody expects theyll raise it at least $2 over the $21. PeopleSoft can continue to reject the offer, but as we all know, money talks, and eventually you could see that they could push it north.”
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