Oracle Revs Up the Rhetoric

Oracle claims PeopleSoft's accounting is flawed.

The war of words between Oracle Corp. and PeopleSoft Inc. over Oracles $7.3 billion hostile takeover bid for its enterprise software rival heated up last week.

Oracle officials, in Redwood Shores, Calif., accused PeopleSoft of improperly recognizing revenue for its latest quarterly financial statement. The officials said PeopleSoft did not properly account for any payouts the company could be forced to make as a result of the Customer Assurance Program that PeopleSoft instituted last summer to stave off the acquisition.

"Whenever you start talking about revenue recognition in todays environment, its a thermonuclear threat—if not an attack," said Alexander Bono, a partner with Philadelphia-based Blank Rome LLP. Bono represents companies, including enterprise software developer SAP AG, in cases involving Securities and Exchange Commission regulations. "The ripple effects of those kinds of threats are inviting regulatory scrutiny, if its not already happening, and inviting class action [lawsuits], if thats not already happening. Those words are fighting words in the marketplace."

How Oracle turned up the heat last week

  • Accused PeopleSoft of incorrectly stating revenues by not accounting for possible costs of rebate program
  • Promised to stack PeopleSofts board in its favor to gain control of the company
  • Said PeopleSoft board is entrenched and eroding shareholder value
  • Said it will look to additional technology acquisitions

At the same press conference, Oracle also affirmed its interest in acquiring PeopleSoft and confirmed that it will wage a proxy battle for control of the Pleasanton, Calif., companys board of directors. If it did gain enough seats on the board, Oracle could gain ownership of the company and nullify PeopleSofts refund program, according to legal experts.

"We are absolutely confident that the revenue related to these contracts is recognized appropriately," said PeopleSoft spokeswoman Dee Anna McPherson, who said Oracles allegations are based on a version of the Customer Assurance Program that PeopleSoft never activated.

With Oracle digging in its heels, the fight for control of PeopleSoft likely will not end anytime soon. The U.S. Department of Justice and the European Commission arent expected to make a decision until early next year on whether the proposed merger would violate antitrust laws.

"I can guarantee you that if I was representing the acquisition candidate and someone made a statement that there were revenue recognition problems, and we were certain there werent, my advice would be to be very aggressive in [terms of] litigation in the media, in the public domain and in terms of reaching out to regulators," Bono said.