Update: PeopleSoft board rejects Oracle bid

PeopleSoft's board of directors voted unanimously to recommend shareholders reject Oracle's unsolicited $5.1 billion bid to take over the company, PeopleSoft said Thursday.

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Oracle's announced plans to discontinue development of PeopleSoft products would limit choice and stifle competition, harming both PeopleSoft's customers and its stockholders, PeopleSoft Chief Executive Officer Craig Conway said in a prepared statement.

Echoing comments made earlier this week by J.D. Edwards CEO Bob Dutkowsky, PeopleSoft warned that Oracle's plan raises significant antitrust issues and stands a strong chance of being rejected by government regulators in the U.S. or Europe.

PeopleSoft's board cited Oracle's low valuation of PeopleSoft as another factor in its rejection. Oracle's tender offer, which commenced Monday and runs through July 7, offers $16 for each tendered PeopleSoft share. Since Oracle announced its bid on Friday, PeopleSoft shares have continuously traded above $16. In Thursday trading on the Nasdaq exchange, shares ended the day at $17.37.

PeopleSoft's board also reiterated Thursday its endorsement of the plans to buy J.D. Edwards. PeopleSoft filed Wednesday regulatory paperwork related to the buyout with several U.S. agencies.

"PeopleSoft was targeted for a hostile bid exactly because we have stronger products, exactly because we are so strongly positioned," Conway said in an afternoon conference call with analysts.

Oracle fired back, with a spokesman charging that PeopleSoft has "put the self-interest of management over the best interests of PeopleSoft shareholders" in rejecting Oracle's bid without meeting with Oracle to discuss the offer.

Oracle Chairman and CEO Larry Ellison reiterated this point in a later conference call with analysts to discuss Oracle's fourth-quarter and fiscal year results.

Ellison went on to explain that Oracle's purpose in making the bid was to give PeopleSoft's customers and shareholders a choice.

"We decided to go straight to the shareholders and give them a choice between our offer and the management offer for J.D. Edwards," he said.

PeopleSoft management is not doing well, Ellison said. "They are down 28 percent on the year in an up market. Their license sales dropped 39 percent. That compares with a slight increase in Oracle's sales," he said.

"Craig Conway said our offer is designed to disrupt PeopleSoft's strong momentum in the market. I'm not sure how [license sales dropping 39 percent] is strong momentum," Ellison said.

Even if PeopleSoft shareholders take advantage of Oracle's tender offer, the company can block Oracle's takeover attempt using provisions in its shareholder rights plan known as a "poison pill," intended to drastically increase the cost of a hostile acquisition.

Oracle has repeatedly called on PeopleSoft to redeem or revoke its poison pill. Analysts on the call pressed PeopleSoft's executives for more details on the provision, with one complaining that despite his training as a lawyer, he still couldn't decipher how the company's poison pill works. PeopleSoft Chief Financial Officer Kevin Parker declined to discuss the details.

Conway also addressed Ellison's claims that PeopleSoft approached Oracle previously about merging the companies.

PeopleSoft offered last year to acquire Oracle's E-Business Suite, with the idea that PeopleSoft would continue supporting and developing it, Conway said.

"Ironically, one of the reasons [Ellison] dismissed it is he felt there needed to be one code base," Conway said. If Oracle's acquisition of PeopleSoft goes through, Oracle plans to discontinue new sales of PeopleSoft's applications but to continue supporting them.

Ellison had a different twist on events.

A year ago, Ellison said, Conway had proposed that the businesses merge, and that he (Conway) should run the merged business. The only difference between Conway's proposal a year ago, and Ellison's now, is that Conway would not be running the merged business, and that explained his hostility to it.

Conway speculated that IBM could be the main beneficiary of the confusion in the enterprise software sector kicked up by Oracle's actions.

"IBM is the only significant competitor to Oracle in the database industry," he said. "I think IBM has the opportunity to convert Oracle customers into IBM customers. I think that is going to be an interesting development out of this."

Conway professed himself unworried that SAP will steal customers frustrated by the turbulence. SAP, which begins its annual user conference next week, has launched a campaign to woo users from both PeopleSoft and J.D. Edwards, which Pleasanton, Calif.-based PeopleSoft plans to acquire.

"Even if [enterprise applications customers] have issues or concerns, they do not, unless they are forced to, change vendors very easily," Conway said.

But in Oracle's conference call, Ellison cited several large customers, including Merrill Lynch, who had done just that, ditching PeopleSoft for Oracle rather than give in to PeopleSoft's pressure to upgrade from PeopleSoft 7 to PeopleSoft 8.

J.D. Edwards, in Denver, strongly backed PeopleSoft's rejection of Oracle's bid. Oracle's plan "benefits Oracle alone and is designed to disrupt the momentum of both of our companies," CEO Dutkowsky said Thursday in a prepared statement.

-- With additional reporting by Peter Sayer.