Update: Oracle to buy PeopleSoft for $10.3B

Definitive agreement ends acrimonious takeover battle that lasted more than 18 months

Oracle has signed a definitive agreement to acquire PeopleSoft for $26.50 per share, or approximately $10.3 billion, the companies said Monday, ending an acrimonious takeover battle that has lasted for more than 18 months.

The transaction has been approved by both companies' boards of directors and is expected to close in late December or early January. The agreement followed discussions between the companies throughout the weekend, PeopleSoft said in a statement.

PeopleSoft's board decided that Oracle's latest offer provides good value for PeopleSoft's stockholders, the company said. The agreement ends a long, emotional struggle, it said.

The customers Oracle gains from PeopleSoft will allow it to invest more in applications development and support, Oracle said in a separate statement, repeating an argument the company has been making for the past year and a half as it fought to win support from PeopleSoft's shareholders, executives and customers.

The companies had been scheduled to meet later Monday in Delaware Chancery Court to give depositions over PeopleSoft's "poison pill" provision, aimed at blocking a hostile takeover attempt. The poison pill allows PeopleSoft to significantly inflate its number of outstanding shares in case of a takeover bid, making a buyout prohibitively expensive.

The companies now plan to put their litigation on hold and drop the claims entirely when the merger is complete, PeopleSoft said in its statement.

The agreement came about after a representative from PeopleSoft approached Oracle over the weekend, according to Larry Ellison, Oracle's chief executive officer, who discussed the deal during the company's quarterly earnings call Monday.

"We met throughout the weekend and PeopleSoft gave us financial details that allowed us to analyze the transaction even better. We were able to assess the real value of the deal," he said.

The sum Oracle has agreed to pay is $2.50 per share higher than the "final" offer it made for PeopleSoft at the start of November.

"This merger works because it increases our ability to sell into the applications marketplace; it doubles our installed base and increases our sales force," Ellison said.

Oracle plans to develop a suite of business applications that merges features from the products sold by Oracle, PeopleSoft and the former JD Edwards, which PeopleSoft acquired last year for $1.8 billion, Ellison said. That product is still two to three years out, he said. In the meantime, Oracle will enhance PeopleSoft 8 and JD Edwards 5, and also release upgrades to both those suites, he said.

"Customers should think of upgrading before they get the idea of moving to a merged product. It is some ways away," Ellison said.

"PeopleSoft 9 and JD Edwards 6 will come out about 18 months from now. Actually, 12 to 24 months is a safer range," he said, admitting that the company is still at the "guessing stage" about product delivery schedules.

The plans are somewhat at odds with Oracle's earlier statements, but bringing the affair to a conclusion, and creating a more viable competitor to market leader SAP, is good for the industry and for both companies' clients, according to Philip Carnelley, a research director with UK analyst company Ovum.

"PeopleSoft's customers had been suffering from uncertainty over future directions. At least now they'll get some certainty, even if they don't like the outcome -- which now seems rather better than they feared," he wrote in an e-mail commentary.

"A stronger, equivalent competitor to SAP -- even if it'll take some time to emerge properly -- will also be good for the industry and future buyers. It really was having things all its own way," he wrote.

Oracle's offer depends on a majority of PeopleSoft's outstanding shares being tendered in favor of the deal, as well as customary closing conditions. Oracle said last month that it had secured the backing of enough PeopleSoft shares to complete the merger. At the close of business Friday, approximately 120.6 million shares had been tendered in favor of the offer, Oracle said.

PeopleSoft's board recommended on Monday that the company's shareholders tender their shares in Oracle's favor.

The news came on the same day Oracle announced its financial results for the quarter just ended. During the quarter, revenue from Oracle's applications business increased by 57 percent, Oracle said in the statement.

The agreement follows a lengthy and sometimes ugly battle during which Oracle steadily chiselled away at obstacles to the merger, which at times looked unlikely to succeed. The most vigorous opposition came from U.S. antitrust regulators and from PeopleSoft's own management, who had insisted the company was not for sale at any price.

The U.S. Department of Justice tried to block the deal on the grounds that it would reduce competition in the ERP (enterprise resource planning) market to such a degree that customers would end up paying higher prices. But in September a California judge rejected the argument, accepting Oracle's position that sufficient vendors would remain to keep the market competitive. European regulators followed with a similar decision.

Oracle also faced hostility from PeopleSoft's board, and in particular from its former president and CEO, Craig Conway, who said the deal would hurt PeopleSoft's shareholders and customers. Conway was dismissed by the board in October, when it said it had lost confidence in his ability to lead the company. Weeks later, PeopleSoft director Steven Goldby testified in court that he would be open to discussions with Oracle if the price were right.

On Nov. 1 Oracle made what it said would be its final offer for PeopleSoft, increasing its bid from $21 per share to $24 per share. When it learned a week later that PeopleSoft planned to reject the offer, it said it would leave the matter to PeopleSoft's shareholders. "PeopleSoft's shareholders now face a very simple decision. They can accept our all-cash $24-per-share offer ... or it will be withdrawn," Jeff Henley, Oracle's chairman, said at the time.

The following week, a majority of PeopleSoft's shares were voted in Oracle's favor -- but still the wrangling continued. PeopleSoft's board said it was convinced that its biggest stakeholders did not want the merger to go ahead at the price Oracle had offered. Oracle then nominated its own slate of executives for PeopleSoft's board, setting the stage for a proxy battle for control of the company.

The two sides apparently managed to reach an accord over the weekend, with PeopleSoft's board agreeing to drop its poison pill measure, and Oracle agreeing to pay a premium of almost 10 percent over PeopleSoft's closing share price Friday of $23.95.

(Scarlet Pruitt in London contributed to this report.)

Copyright © 2004 IDG Communications, Inc.