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PeopleSoft Stance May Be Softening

September 11, 2004|Joseph Menn | Times Staff Writer

SAN FRANCISCO — Signaling a potential breach in PeopleSoft Inc.'s resistance to a takeover, a growing number of the company's shareholders on Friday called for management to negotiate a friendly deal with software giant Oracle Corp.

Investors impatient with sliding profit at Pleasanton, Calif.-based PeopleSoft said Oracle's $7.7-billion tender offer deserved serious consideration, particularly after a federal judge on Thursday rejected the Justice Department's antitrust challenge to the acquisition bid.

U.S. District Judge Vaughn Walker's ruling allowing Oracle to proceed with its hostile offer opened a new -- and possibly final -- chapter in a vicious 15-month saga pitting the company's larger-than-life chief executive, Larry Ellison, against a defiant former protege, PeopleSoft CEO Craig Conway.

On Friday, Conway and other PeopleSoft executives restrained their usually strident criticism of Oracle and left open the possibility that the fight to keep PeopleSoft an independent company might be flagging.

"They should sit down and talk to Oracle management and finally give up the ghost," said PeopleSoft investor Steven Cohen of hedge fund manager Kellner DiLeo Cohen & Co. "It's been 15 months of them preventing their shareholders from getting a very significant premium for their stock."

PeopleSoft shares on Friday rose $1.84, or 10%, to $19.79 on Nasdaq, approaching the $21-a-share offer from Oracle. Shares of Redwood City, Calif.-based Oracle rose 53 cents, or 5%, to $10.46 on Nasdaq.

About 7% of PeopleSoft stockholders have tendered their shares to Oracle.

"Most investors would agree that $21 is an attractive offer," said Merrill Lynch & Co. analyst Jason Maynard, whose firm owns both PeopleSoft and Oracle stock. "I have to assume that at some point in time ... they're going to have to negotiate a deal with Oracle."

The tone at PeopleSoft, meanwhile, seemed to soften.

In a letter to employees that was filed with securities regulators Friday, PeopleSoft's Conway said the board would weigh what to do next and promised that it would act "in the best interests of our stockholders." He did not rule out a takeover.

Conway's relatively neutral language contrasts with earlier pronouncements, including his description of Oracle's initial offer as "atrociously bad behavior." Conway has been criticized by some investors for failing to meet with Oracle, and he now may be more sensitive to such concerns.

The fight has been bad for business. In July, PeopleSoft blamed a 70% drop in second-quarter profit on distractions caused by Oracle's takeover bid. PeopleSoft makes the sophisticated software that powers the back-office operations of big companies -- a market that Oracle, better known for its database software, wants to expand in.

PeopleSoft spokesman Steve Swasey said Friday that the company's opposition to an Oracle takeover had not changed. He said he did not know whether any talks with Oracle had begun.

Oracle declined to comment.

With the antitrust case decided, the most powerful defense left for PeopleSoft is a "poison pill" provision instituted years ago. The measure goes into effect when an unwelcome buyer acquires 20% or more of the company's shares. At that point, executives are allowed to issue millions of shares to all other stockholders, thereby diluting the hostile buyer's ownership and making a takeover prohibitively expensive.

Oracle has sued PeopleSoft to force it to disable its poison pill. But several analysts suggested Friday that PeopleSoft directors, charged with serving shareholders, would dissolve the poison pill on their own if that's what a majority of investors wanted.

"Once you remove the antitrust objection, I'm not sure what justification they're going to continue to stand on for turning this deal down," said analyst Charles Di Bona of Sanford C. Bernstein & Co., whose parent firm owns PeopleSoft stock. "That was the linchpin of their whole argument."

The Justice Department may still appeal Thursday's ruling, although legal experts said it would be difficult to overturn. The European Commission said Friday that it would review the ruling before deciding whether to oppose the deal.

Without further regulatory intervention, analysts said, negotiations between Oracle and PeopleSoft could begin soon. Key to the discussions, some said, will be whether Oracle is willing to sweeten its offer.

Will PeopleSoft's directors "revisit their stance? And does Oracle revisit its bid?" Di Bona asked. "I would personally think the answer is yes to both."

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