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PeopleSoft Adds to Suits Against Oracle Takeover

The latest action accuses CEO Ellison of making an insincere bid in an attempt to disrupt business relationships.

June 14, 2003|Joseph Menn | Times Staff Writer

Oracle Corp.'s hostile $5.1-billion bid for software rival PeopleSoft Inc. may not end up enriching PeopleSoft shareholders, but it's well on its way to enriching a number of lawyers.

On Friday, PeopleSoft sued Oracle in Alameda County Superior Court, accusing the database giant of improper interference in its relationships with customers and of unfair trade practices. The case joins two filed Thursday by J.D. Edwards & Co., a third software firm that PeopleSoft plans to acquire in a deal jeopardized by Oracle's $16-a-share cash offer.

PeopleSoft Chief Executive Craig Conway accused Oracle CEO Larry Ellison of making an insincere bid with the intent of "damaging PeopleSoft's business even if Oracle never buys a single share of PeopleSoft stock."

So far, the lawsuits are among the biggest threats to Oracle's 5-day-old bid. PeopleSoft and Edwards are asking for preliminary injunctions to stop the tender offer before its initial deadline of July 7.

But analysts, legal scholars and takeover experts said the deal's outcome almost certainly would be determined by hard cash, not the courts. They added that meetings now underway between Oracle and PeopleSoft investors would show by how much Oracle needs to boost its offer -- if, in fact, Oracle is willing to pay anything extra to win.

"In hostile situations, there's a lot of litigation touching a variety of things, the vast majority of which have no bearing on the ultimate result," said Morton Pierce, head of the mergers and acquisitions practice at Dewey Ballantine in New York. "What affects the outcome of the transaction is who pays more money."

Oracle called the lawsuits a smoke screen. "This is a tactic designed solely to distract PeopleSoft shareholders from making a choice while PeopleSoft management remains intent on keeping hefty pay packages and neglecting the best interests of shareholders," said Oracle spokesman Jim Finn.

Oracle's bid, however, is as unorthodox as any response by PeopleSoft and J.D. Edwards.

The offer came in at just 6% above where PeopleSoft's stock was trading, making it unlikely to succeed without sweetening. Ellison, meanwhile, already has achieved at least one of his possible goals -- making PeopleSoft and J.D. Edwards customers more reluctant to buy additional business applications software from the two companies while their future is in question.

That strategy is cited in the recent lawsuits, along with the accusation that Ellison intends to stop PeopleSoft from buying J.D. Edwards if his bid succeeds. Oracle has said it would "re-evaluate" the proposed merger, which corporate lawyers said is almost certainly defensible in court.

PeopleSoft's suit cites California fair-practice laws and says that Oracle employees are misleading PeopleSoft customers about the difficulty of switching to Oracle products and other matters.

PeopleSoft attorney Jonathan Dickey of Gibson, Dunn & Crutcher said his side will have to show misconduct, malicious intent and damages to prevail.

Dickey said he knew of no other case in which a takeover bid was derailed by such legal action.

"This is admittedly not something that is a customary cause of action between two competitors," Dickey said. But he said it is nearly as rare to see a corporate suitor pledge to destroy the company it is seeking. The suit, he said, "is about stoping an effort to kill this company."

Both PeopleSoft and J.D. Edwards also rely on what experts said is a fairly thin legal claim -- that Oracle is "tortiously interfering" with PeopleSoft's contracts with J.D. Edwards and with PeopleSoft customers.

Typically, tortious interference claims succeed only when an outside party, in this case Oracle, manages to induce a party to an agreement to breach that agreement. In the best-known interference case, Texaco Inc. lost a judgment of more than $10 billion after it disrupted a deal between Pennzoil Co. and Getty Oil.

But in this case, PeopleSoft hasn't gone back on its word to buy J.D. Edwards, leaving experts scratching their heads. Of half a dozen lawyers and academics contacted this week by The Times, none could cite a successful case based on attempted interference.

"You've got to bust it up before there's interference," said Texas attorney Joseph Jamail, who won the case against Texaco.

Latham & Watkins attorney Christopher Kaufman, who has litigated on both sides of hostile takeovers in Silicon Valley, also said J.D. Edwards would have to plow new legal ground to win.

"The interference claim that people think of is inducing someone else to break a contract. That someone else is PeopleSoft, and I don't see how that's happened yet," Kaufman said.

J.D. Edwards declined to elaborate on its legal strategy. Oracle shares closed up 15 cents at $13.48 in Friday trading. PeopleSoft shares fell 45 cents to $16.92. J.D. Edwards shares fell 32 cents to $13.04. All trade on Nasdaq.

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