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Oracle raps PeopleSoft customer refund program

Oracle tells a judge the anti-takeover measure is unnecessary and ties the hands of a future board of directors.

WILMINGTON, Del.--Oracle has stepped up its attack on PeopleSoft's customer refund program in an effort to convince a judge that the anti-takeover measure is unnecessary and should be eliminated.

A witness for Oracle, which has launched a $7.7 billion hostile takeover bid for the smaller software company, testified Thursday that the customer assurance program would have been more attractive to chief information officers if it had been crafted differently. Adopted days after Oracle's June 2003 offer, the program requires an acquirer to pay new PeopleSoft customers up to five times the cost of their license fee if their software is no longer supported.

Ken Harris, a former chief information officer for the Gap, said a more carefully targeted assurance program--customized in each customer's contract--would have "sufficiently assuaged a CIO's concerns at a lower cost to PeopleSoft." The current refund program creates potential liabilities of more than $2 billion.

PeopleSoft has said the refund program was necessary to assure nervous customers--worried about the high costs of moving to another system--that their software would still be supported after any acquisition. It has pointed to ambiguous statements from Oracle Chief Executive Larry Ellison raising doubts about how PeopleSoft customers would be supported after the deal was completed and under what circumstances they would be compelled to move to different software.

Part of Oracle's strategy during the trial that began Monday in Delaware's Court of Chancery has been to take systematic aim at the refund program. It is an overreaction by the PeopleSoft board that is unprecedented in the history of anti-takeover measures and unlawful because it ties the hands of a future board of directors, Oracle has claimed in court documents.

Harris, who also held senior positions at Nike and Pepsi, said additional "specificity is going to give a potential purchaser (of PeopleSoft products) much more comfort" than the current way the program works. He suggested that PeopleSoft could have considered options like making source code available if products were discontinued, or authorizing a third-party vendor to "take over and provide support."

Judge Leo Strine, who frequently questions witnesses, seemed skeptical of Harris' point. "Having that enormous club, doesn't it help you in other situations?" asked Strine, a vice chancellor at the Delaware court. "You don't see the club as a sufficient club to make everyone dance to your tune?"

The Delaware case, which is expected to conclude next week, represents Oracle's attempt to eliminate a so-called poison pill defense that would effectively block any hostile takeover of PeopleSoft.

PeopleSoft's poison-pill strategy would make a hostile takeover bid prohibitively expensive, because it would release a flood of additional shares to the market, making it difficult or impossible for an acquirer to purchase all the shares needed to gain a controlling stake in the company. This strategy is one of the few remaining obstacles to the acquisition after the Department of Justice's bid to block the deal failed.

Also on Thursday:

• Oracle once again extended its tender offer for PeopleSoft and set a new deadline of Oct. 22. It had been scheduled to expire Friday evening.

• An Oracle director indicated that the current $21-a-share offer--which has fluctuated up and down over the last 16 months--could be upped again if necessary.

• The European Commission has resumed its review of the proposed acquisition with an eye to reaching a decision by Nov. 9 about whether to block it, Reuters reported.