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Oracle: PeopleSoft shares in short supply

Only a few investors have tendered shares in Oracle's hostile takeover bid for PeopleSoft, says to a top Oracle exec--but there won't be any rise in the price of its share offer.

As Oracle presses on with its hostile bid for PeopleSoft, only a "few" shares have been tendered at this point, Oracle executive Chuck Phillips said Friday.

Phillips, an executive vice president, noted in a conference call that Oracle sees "no reason" to raise its cash offer of $19.50 a share, even though PeopleSoft on Friday announced that it was rejecting that bid.

PeopleSoft's "institutional investors are supportive of the combination...the only issue for them is the price," said Phillips, who noted that Oracle has made presentations to more than half of the business software maker's shareholder base. "We asked them: 'What's the right number?' and all of them said $19 or $20 a share. So we decided to split the difference at $19.50."

Oracle, which launched its hostile bid on June 6 with a cash offer of $16 a share, to $19.50 on Wednesday. That increase came three days after Oracle began its road show with PeopleSoft investors.

Phillips told CNET that he didn't know the exact number of shares tendered so far, but noted that it was small. This is because "it's currently not too meaningful for most people to tender, if a major condition for the deal being closed--the redemption of the 'poison pill'--has not been removed."

"Without that redemption, tendering is somewhat of a political vote, but not an economic event," he added.

Proxy solicitors, however, say hostile buyers will frequently amass more than 50 percent of tendered shares and use that majority to pressure the target company into removing a poison pill or shareholder rights plan. Under the plan, if a prospective buyer acquires more than 20 percent or more of outstanding PeopleSoft shares, the company will issue a flood of new shares to dilute that holding.

"We have not pushed (PeopleSoft's) shareholders to put pressure on management," Phillips told CNET Oracle has given the shareholders until July 7 to tender their stock, although that deadline can be extended.

In the conference call, Phillips said the database maker sees no reason to increase its current bid. "We haven't made any comments on plans beyond that, at this point," he said.

"There's no one to bid against. There's no 'white knight,' so there's no real reason to raise the price," he added. "There is not a lot to do here until (PeopleSoft) management wants to take the next step."

However, PeopleSoft disclosed in a filing Friday night that its board had "determined that future circumstances might make it advisable or necessary for the company to engage in discussions or negotiations with third parties regarding extraordinary transactions," such as a proposed sale or merger. That opens up the way for a white knight to step in. However, the board said "no agreements in principle" had been reached.

Phillips, a former star software analyst at investment banking firm Morgan Stanley, raised eyebrows last month when he left that firm to join Oracle, one of the companies on which he issued investment advice. Less than a month after he assumed his position as executive vice president and top advisor to Ellison, Oracle announced its takeover bid for PeopleSoft.

The executive vice president and Ellison conducted "industrial espionage," according to a lawsuit filed against Oracle last week by J.D. Edwards, a software company that PeopleSoft agreed to acquire just days before Oracle launched its own takeover bid. PeopleSoft's purchase of J.D. Edwards would make it the world's second-largest business application company behind SAP, nudging Oracle out of that spot.

Morgan Stanley is representing J.D. Edwards in its merger with PeopleSoft, and J.D. Edwards contends that Phillips used his inside knowledge of that deal to help Oracle.

Phillips called the lawsuit "ridiculous" and said there is "plenty of strong evidence" to counter J.D. Edwards' claims.

Asked during the conference call if Oracle hired him specifically to help lead a major acquisition, Phillips responded that he had been given no job description when hired and was in the process of defining it when the company announced its buyout bid.

"I had some initial ideas on partnerships and strategic relationships," he said, noting that he was surprised by Oracle's takeover bid.

Should the takeover prove successful, Phillips said that Oracle plans to support PeopleSoft's products for "years to come" and that it won't force the Pleasanton, Calif.-based company's customers to convert to Oracle programs.

In a Friday statement, Ellison accused PeopleSoft executives of using "lies and scare tactics" by telling the company's customers that Oracle plans to shut down PeopleSoft's products and force users to move to Oracle applications. "We will continue to develop and improve PeopleSoft's products for at least the next ten years--even longer, if customers require further support," Ellison said.

Phillips said in the conference call that Oracle would enhance various PeopleSoft applications and extend support for them beyond their current schedule, as well as introduce more outsourcing options for them.

In addition, the Redwood Shores, Calif.-based company intends to offer free Oracle application licenses in exchange for the PeopleSoft licenses that it replaces.

"We wouldn't be offering to pay $6.3 billion in cold, hard cash for these customers if we didn't want to keep them," Phillips said.

Oracle has recently sought to soften initial comments by Ellison that he had no intention of maintaining or selling PeopleSoft's applications, which compete head-to-head with Oracle's. Some of PeopleSoft's 5,100 customers were wary of that earlier stance, because migrating to an entirely different set of business applications can be a time-consuming and costly undertaking.

Despite the pledge of support for PeopleSoft products, Phillips acknowledged that Oracle's long-term strategy is to entice the acquired customer base into swapping that technology for its own. He added that several information technology companies have already had discussions with Oracle about gearing up services and tools for migration projects, which would not be provided for free.

Noting that consulting fees for such projects can cost customers several times the price of the software itself, Phillips said Oracle intends to make the effort involved in migrating from PeopleSoft to Oracle applications not unlike upgrading from one major PeopleSoft release to the next.

But Phillips sees a battle brewing for the hearts and minds--not to mention wallets--of PeopleSoft customers, should Oracle seal the deal. "The question is: How much do we get of (the PeopleSoft migration business) versus SAP and Microsoft?"