White knight waiting in PeopleSoft wings?

Now that PeopleSoft has been put into play, the rumor mill has been in overdrive with IBM, SAP and Microsoft all mentioned by analysts as possible candidates. Patrick Snell, an analyst with Robert W. Baird & Co., wrote in a research note that he believes there could be a bidding war involving all three companies for PeopleSoft. Indeed, IBM, which had more than $5.5 billion in cash and equivalents at the end of its March quarter, already has a long-standing joint-marketing deal with J.D. Edwards, which earlier this week announced it will be acquired by PeopleSoft.

But the odds of a third party emerging from the shadows remain remote, some analysts say.

"I can't see IBM getting involved in this," said Bruce Richardson, an analyst at AMR Research. "They have never been successful in the applications market. But they may not want to lose revenue from J.D. Edwards. Still, I can't imagine them doing that."

W.R. Hambrecht analyst Richard Petersen agreed, saying he thinks IBM has little interest getting into the applications software business and that it's unlikely that another suitor will jump into the fray.

"The only other possible bidder is SAP, and SAP benefits more from standing on the sidelines and watching the carnage than it does by acquiring PeopleSoft," Petersen said. "In any event, SAP does not have a history of making large acquisitions."

Richardson initially viewed the Oracle bid as a ploy to derail the pending PeopleSoft-J.D. Edwards deal. He now believes Oracle's bid is genuine, especially given the caliber of the company's advisers. The company recently hired Chuck Phillips, a former Morgan Stanley software analyst, as an executive reporting to and advising Oracle CEO Larry Ellison.

"I can't think that Chuck Phillips would advise Ellison to do this if it wasn't for real," Richardson said. "He wouldn't (mess) with Wall Street."

PeopleSoft, like a number of other companies, has a policy in place to make it more difficult for hostile suitors to take over. Often referred to as a "poison pill," the provision calls for more shares to be unleashed--thereby making it more expensive for an unwanted suitor to acquire the company.

PeopleSoft has not yet officially turned down Oracle's offer, though Craig Conway, CEO of the software maker, dismissed the takeover bid as "atrociously bad behavior from a company with a history of atrociously bad behavior."

Of course, that may be the opening shot in a campaign to convince Oracle to sweeten its offer. It could also be a prelude to an official rejection.

Hostile takeovers in businesses like the software industry are rare, because the prize assets--employees--can walk out the door if they don't like the new management. That conventional wisdom could be get put to the test, however, considering that Ellison has made it clear that Oracle has no intention of keeping PeopleSoft alive as a separate brand, should the deal go through.

Other companies have taken special steps to avoid bad blood during takeovers. For instance, when IBM launched an unsolicited $3 billion takeover of Lotus Development in June 1995, Big Blue CEO Lou Gerstner, who coveted Lotus Notes' groupware product, paid a special visit to Massachusetts to woo the company's star developer, Ray Ozzie. What's more, Gerstner sweetened the offer to $3.5 billion to help clinch the agreement.

"Our initial reaction was: How do we fight it?" recalled Richard Eckel, then-director of communications at Lotus. "That very quickly transitioned. Then the strategy became: How do (we) get more money?"

Money is often the deciding factor for takeovers. In 1995, SoftKey International launched an unsolicited bid for the Learning Company. Broderbund also had put in a bid to buy the company, but SoftKey ultimately won the bidding war with a $607 million deal. The postscript came in June 1998 when SoftKey, which by then had taken the Learning Company name, bought Broderbund for $420 million in stock.

Computer Associates International launched a hostile $9.8 billion cash bid in 1998 for consulting firm Computer Sciences. But Computer Sciences' board rejected the offer as insufficient, and Computer Associates gave up after a month of trying.

In a twist, Computer Associates found itself on the receiving end of a hostile offer by Texas financier Sam Wyly a couple years later. Wyly sought to break up the company into four separate businesses. But after a bitter proxy battle to replace the board of directors, shareholders stuck with Computer Associates' management.

CNET News.com's Ian Fried, David Becker and Mike Ricciuti contributed to this report.