Federal antitrust officials Monday cleared PeopleSoft Inc.'s purchase of J.D. Edwards & Co., possibly thwarting a hard-fought effort by Oracle Corp. to undermine the deal by buying PeopleSoft first.
PeopleSoft executives said they expected to complete the $1.7-billion union Friday, creating the world's second-largest provider of business applications software.
Oracle launched a hostile $5.3-billion tender offer for PeopleSoft shortly after that firm announced plans to buy J.D. Edwards. Although Oracle executives have said they aren't interested in J.D. Edwards, they reiterated their desire for PeopleSoft on Monday.
"We remain fully committed to acquiring PeopleSoft, with or without J.D. Edwards," Oracle spokesman Jim Finn said.
Oracle extended the deadline on its offer from Friday to Aug. 15. As of Friday, 11% of PeopleSoft's shares outstanding had been tendered.
With the PeopleSoft-J.D. Edwards deal cleared, analysts and shareholders said Oracle would have to rethink its approach and probably sweeten its $19.50-a-share bid. They said a combined PeopleSoft and J.D. Edwards was worth more than PeopleSoft alone -- and would be far more problematic to buy and manage.
"It's a double whammy against Oracle," said Chuck Jones of Stein Roe Investment Counsel, whose clients own shares of Oracle and PeopleSoft. "If Oracle still wants them, in theory they'll have to raise the price. But the effort of what they're doing becomes to a large degree more difficult."
Oracle shares slipped 20 cents to $12.64, while PeopleSoft rose 16 cents to $18 and J.D. Edwards gained 23 cents to $14.77. All trade on Nasdaq.
The PeopleSoft-J.D. Edwards union would create a company with annual sales of $2.8 billion, 11,000 customers and 13,130 employees. PeopleSoft sells software for managing payroll and other human resources tasks for large companies, while J.D. Edwards' software programs target small and mid-sized businesses.
"PeopleSoft needs to buy J.D. Edwards in order to expand into new markets like asset-intensive industries and manufacturing," IDC analyst Albert Pang said. "In order for PeopleSoft to better compete with the No. 1 player, SAP, they've got to have a full range of products."
The merger, announced June 2, was revised and hastened after Oracle launched its takeover bid for PeopleSoft. Instead of an all-stock deal, PeopleSoft threw in $838 million in cash. The original proposal was to leave current PeopleSoft shareholders with 75% of the combined company; under the amended pitch, they would retain 85.7%. J.D. Edwards shareholders, meanwhile, would be able to pocket the cash in addition to PeopleSoft stock.
Some analysts said PeopleSoft also may now move more quickly than it initially planned to integrate the businesses. That would make it more difficult for Oracle to convince investors that it could spin off J.D. Edwards, either to smooth its own integration concerns or to satisfy antitrust officials.
Citing antitrust concerns, the Justice Department asked recently for more information about Oracle's bid.
"PeopleSoft may wish to move as quickly as possible to integrate J.D. Edwards, but a lot of product compatibility issues will slow things down," Pang said. "PeopleSoft is going to have to reach out to customers, present them with their road maps and milestones in order to boost customer confidence."
If Oracle decides it wants to end up with both PeopleSoft and J.D. Edwards, it would face an even bigger challenge in hanging on to the latter's customers, said Sanford C. Bernstein analyst Charles Di Bona.
Three in 5 PeopleSoft customers run those programs on top of database software from Oracle. But 70% of J.D. Edwards clients use gear from Oracle rival IBM Corp., he said.
"Oracle would have to migrate them not only to new software but new hardware," Di Bona said. "You're going to lose a lot.... It's just a messier deal, and it's more distracting."
It may take more cash, as well as a new strategic plan, for Oracle to get the 51% of PeopleSoft shares it needs, even if PeopleSoft drops its takeover defenses.
Because PeopleSoft is giving shareholders some cash to get J.D. Edwards, Oracle can't recapture that money. And the 52.6 million new shares being issued by PeopleSoft in the takeover effectively raise the price for Oracle by more than $1 billion -- even if it continues offering $19.50 a share.
"The deal still works," Wells Fargo Securities analyst Eric Upin said. But he added, "Our view is it's way too close to call."