Update: Oracle to make $5.1 billion bid for PeopleSoft

Oracle is making a $5.1 billion bid for enterprise software provider PeopleSoft in a move to increase earnings and enhance future versions of its eBusiness Suite, the company said Friday.

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The move comes just days after PeopleSoft announced that it plans to acquire Denver-based J.D. Edwards. However, Oracle said in a statement Friday that the J.D. Edwards buy will be subject to review once Oracle acquires Pleasanton, Calif.-based PeopleSoft.

Oracle is commencing a cash tender offer to acquire all outstanding shares of PeopleSoft for $16 a share, or $5.1 billion, on Monday. The offer will be subject to customary conditions, Oracle said, including a redemption or amendment to PeopleSoft's shareholders' rights plan.

PeopleSoft stock was selling at $15.11 a share at the close of business on Thursday, making Oracle's $16 offer a slim 5 percent premium for PeopleSoft shareholders.

Oracle was up $0.09, trading at $13.35, an increase of 0.67 percent in mid-morning Friday.

In a conference call discussing the offer, Oracle Chairman and Chief Executive Officer Larry Ellison said that the decision to make a bid for PeopleSoft grew out of talks with PeopleSoft President and CEO Craig Conway last year to merge the application businesses of the two companies.

The companies were unable, at that time, to agree on a structure for combining their businesses, Ellison said.

He characterized Friday's offer as an "alternative partnership than what [PeopleSoft's] management has proposed."

Asked whether PeopleSoft's management team had reviewed Oracle's latest proposal, Ellison declined to comment, referring back to his conversations with Conway last year as evidence of interest in a merger within PeopleSoft's senior ranks.

Speaking to Reuters, PeopleSoft spokeswoman Kara Wilson declined to comment and said she was not aware of the offer by Oracle.

While saying that Oracle was interested in keeping the option of a merger with J.D. Edwards open, Ellison characterized the proposed J.D. Edwards/PeopleSoft deal as a "risky merger" and said Oracle's offer is a better deal for PeopleSoft customers and shareholders.

J.D. Edwards declined to comment on Oracle's offer. "We have not seen the details of the tender offer," said Victor Chayet, J.D. Edwards' director of communications.

"We have to wait until Oracle files on Monday. All we've heard is what they said on the conference call. We'll have to wait until we see the [offer] filing for further comment," he said.

As opposed to the proposed PeopleSoft/J.D. Edwards deal, Oracle's offer would immediately benefit PeopleSoft shareholders and customers, Ellison said.

"This deal works financially and technically for PeopleSoft customers and Oracle customers," Ellison said. "We'll have clever people from both companies working on a next generation product and that's a good thing for PeopleSoft customers and shareholders."

Asked about the slim 5 percent premium on PeopleSoft's stock, given the likely boon in licensing revenue Oracle would realize from the merger, Ellison said that the offer price was based on the recent performance of PeopleSoft stock in the market, citing PeopleSoft's declining revenue and sinking stock price.

"We feel that the $16 per share offer is a safer road for PeopleSoft shareholders and a good thing to do would be to take that $16 and invest it right back in the new company," Ellison said.

Although Oracle has no plans to actively sell PeopleSoft products, the company will provide enhanced support for them and incorporate some features into its own proprietary offerings, Oracle said in its statement.

To encourage acceptance for the offer among PeopleSoft customers, Ellison proposed a variety of measures to sweeten the deal, including the removal PeopleSoft's December support cutoff for the PeopleSoft 7 enterprise applications suite, an indefinite extension of support for PeopleSoft 7 and a removal of additional license fees to upgrade from PeopleSoft 7 to the PeopleSoft 8 suite.

While Oracle would continue to develop the PeopleSoft product line, Ellison suggested that the combined company would also make it easier for PeopleSoft customers to move to Oracle's eBusiness Suite platform.

Portraying PeopleSoft as a company that was struggling to maintain momentum and would be weighed down by a complicated merger with J.D. Edwards, Ellison said that the proposed union of PeopleSoft's and Oracle's application businesses would shore up the product against competition from SAP and Microsoft.

"In terms of the technology's future, PeopleSoft customers will have five or six thousand developers working on a next generation product, and that's something they wouldn't have by continuing down the existing road," Ellison said.

Speaking on the conference call, Oracle Executive Vice President Chief Financial Officer Jeff Henley said that further details would be available when Oracle formally releases documents relating to the offer on Monday.

Henley said that he hoped to close the offer "sometime soon" and that the transaction could be completed as early as July.

Separately, Oracle said Friday that it will meet or exceed consensus estimates of $0.14 to $0.15 earnings per share for the fiscal fourth quarter.