PeopleSoft awaits Delaware court ruling

Company revises 'customer assurance program'

The second and final week of a Delaware court trial relating to Oracle Corp.'s hostile takeover bid for PeopleSoft Inc. turned into an extended negotiating session between the two sides. Oracle executives criticized PeopleSoft's business in an apparent attempt to drive down PeopleSoft's selling price, while PeopleSoft rewrote for the sixth time the controversial "customer assurance program" (CAP) that could significantly increase Oracle's acquisition costs.

The trial concluded on Friday in Delaware's Chancery Court, and the two companies will now wait for a decision from Judge Leo Strine. Oracle has asked the court to invalidate PeopleSoft's "poison pill" anti-takeover defense and its CAP, an initiative PeopleSoft added to customer contracts that promises sizable payouts if PeopleSoft is acquired by a company that disrupts development and support plans.

Strine indicated in court on Friday that he would like to see the CAP amended but was not inclined to void it on already signed contracts, according to an Associated Press report. Strine called customers relying on earlier versions of the CAP "innocent purchasers" whose contracts cannot now be altered, the AP said.

In response to questions raised during the trial, PeopleSoft revised the CAP to clarify some of the language around events that would trigger payments being made to customers, according to PeopleSoft spokesman Steve Swasey.

PeopleSoft's CAP began as an ad hoc response to customer concerns about Oracle's takeover plans and has been through numerous incarnations as PeopleSoft worked to refine the program's promises. As of June 30, the program carried a potential liability of $2 billion. Payments would be triggered if an acquirer (limited to Oracle, in the CAP version PeopleSoft began using in June) bought PeopleSoft and soon thereafter reduced support, licensing, updates or new releases to PeopleSoft's products in specific ways spelled out in the program's provisions.

Meanwhile, Oracle executives used their time on the stand last week to cast doubt on PeopleSoft's value and prospects. Oracle Chief Executive Officer (CEO) Larry Ellison and Co-President Safra Catz both highlighted PeopleSoft's weaknesses and said Oracle could lower its current $7.7 billion offer because of what Oracle sees as PeopleSoft's eroding business. The jockeying for position by both companies led Strine to observe that the trial was as much a business deal as a legal action, according to a court transcript.

The trial's second week was less dramatic than its first, during which PeopleSoft directors were forced to comment in greater detail on their sudden firing of CEO Craig Conway, who was given the boot just days before the trial's start. Last week, PeopleSoft revealed that its top products and technology executive, Ram Gupta, was following Conway out the door.

Conway's firing and comments made by PeopleSoft board members at the Delaware trial indicate that the company may be more willing to entertain Oracle's buyout offer -- but only if Oracle will raise its price, which is current set at $21 per share.

If the two companies don't come to an agreement, they're scheduled to head to court again in January, when trial will begin on a lawsuit PeopleSoft, based in Pleasanton, California, filed in California's Alameda County Superior Court. The company is seeking $1 billion in compensation and damages for what it claims are Redwood Shoes, California, Oracle's unfair business practices and illegal competitive actions.

Copyright © 2004 IDG Communications, Inc.

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