Ellison: Oracle may cut its PeopleSoft bid

Company also seeks to eliminate provisions blocking hostile takeover

Soon after an Oracle Corp. director said Oracle's current $21 per share offer for control of PeopleSoft Inc. may not be its final bid, Oracle Chief Executive Officer (CEO) Larry Ellison countered that the company is as likely to lower its bid as to raise it.

Oracle has done that before -- in May, it reduced its all-cash offer from $26, citing changing market conditions and what it saw as PeopleSoft's deteriorating value. The change cut the price Oracle would pay from $9.4 billion to $7.7 billion.

Ellison's comments came Friday in Delaware Chancery Court, where Oracle is trying to persuade a judge to eliminate several PeopleSoft provisions that could block Oracle's hostile takeover plans. While buying PeopleSoft is "very, very important for Oracle's future," the company has had "more discussions about lowering the price than raising the price," Ellison said, according to an Associated Press report.

Ellison reportedly said he had considered buying PeopleSoft for several years, and expected PeopleSoft would quickly accede to Oracle's takeover plan. Instead, the saga has dragged on for 16 months, generating antitrust investigations in the U.S. and Europe and sparking a number of lawsuits between PeopleSoft, Oracle and associated parties.

The previous merger discussions between Oracle and PeopleSoft have been a recurring issue at the Delaware trial. In June 2002, one year before Oracle initiated its tender offer to PeopleSoft shareholders, PeopleSoft's then-CEO, Craig Conway, called Ellison to inquire about combining their companies' applications businesses. The two sides differ on the terms initially discussed: Conway said he asked Ellison if Oracle would sell its applications business to PeopleSoft, while Oracle says Conway proposed merging the businesses. Either way, the two companies agree the talks ended a day or so later as both vendors believed their applications should be the surviving product set.

The sincerity of Oracle's offer to buy PeopleSoft is another running theme at the trial, and one Ellison spent much of Friday addressing. PeopleSoft has always been on the list of companies Oracle has evaluated as acquisition targets, Ellison argued.

Earlier at the trial, Conway -- who was fired from PeopleSoft last week -- acknowledged that when he first learned of Oracle's offer, he considered it a hoax or a malicious tactic aimed at destabilizing PeopleSoft. Pressed by Oracle's attorney, he still resisted classifying Oracle's bid as a legitimate one, according to a transcript of the proceeding.

"Oracle didn't go away, right?" Oracle counsel Michael Carroll asked. "It wasn't a hoax and a circus act, correct?"

"They didn't go away," Conway answered.

Oracle's motivation for its acquisition attempt will be a central issue at the next court case on the PeopleSoft/Oracle roster, a trial in California's Alameda County Superior Court scheduled to begin in November. That case will focus on PeopleSoft's allegation that Oracle has employed unfair business practices in competing against PeopleSoft.

The Delaware case is expected to continue through next week. If Oracle succeeds in persuading the court to lift PeopleSoft's "poison pill" antitakeover provision -- an unlikely outcome, according to legal experts -- PeopleSoft's shareholders would be free to accept Oracle's tender offer without the cooperation of PeopleSoft's board. If the provision stands, Oracle would need the consent of PeopleSoft's board to complete its takeover.

Financial analysts expect that Oracle will have to increase its bid to win over PeopleSoft's board. The industry consensus is that Oracle will need to offer $23 or $24 per share to advance its bid, said Chris Kwak, of the Susquehanna Financial Group LLP in New York, said.

As of Thursday, Oracle had 11.7 million PeopleSoft shares validly tendered into its offer, around 3 percent of PeopleSoft's outstanding total. That number is down from the 23.8 million shares tendered into the offer in late September, but the total would likely rise again if shareholders thought PeopleSoft's board would clear the deal.

Copyright © 2004 IDG Communications, Inc.

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