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Oracle sees PeopleSoft profit declining

PeopleSoft's profit may drop "significantly" this year, according to testimony by an Oracle executive.

PeopleSoft's financial condition may have deteriorated by as much as one-third since the start of the year, a top Oracle executive said Monday during courtroom testimony.

Safra Catz, Oracle's co-president, said in Delaware Chancery Court that the software maker suspects that the financial condition of PeopleSoft may have fallen by 25 percent to 33 percent. Catz was testifying under cross examination in the second week of a court case launched by Oracle to remove PeopleSoft's anti-takeover measures, said Jim Finn, an Oracle spokesman.

While Catz commented on the financial condition of PeopleSoft, she did not apply that decline to how it would affect Oracle's current hostile bid of $21 a share for PeopleSoft. But last week, Larry Ellison, Oracle chief executive, testified: "There have been discussions about raising the price," but also "there have been more discussions about lowering the price."

Safra Catz
Co-president, Oracle
If Oracle were to apply that financial decline of 25 percent to 33 percent to its tender offer, that would cut the offer down to $14 and would cut the total bid price from $7.7 billion to about $5.08 billion.

In court, Catz pointed to Wall Street analysts' predictions of a decline in financial health for PeopleSoft.

PeopleSoft representatives declined to comment on Catz's testimony.

In January, Oracle said it expected its business software rival to earn roughly 85 cents a share for all of 2004. That was somewhat in line with analysts' expectations on Dec. 31 of 89 cents a share, up from 60 cents a share in August 2003.

Given those estimates, Oracle in February raised its tender offer to $26 a share from $19.50.

But in May, before PeopleSoft reported its second-quarter results, Oracle dropped its tender offer to $21 a share, citing overall market conditions.

Wall Street analysts have since reduced their forecast for PeopleSoft's full-year 2004 performance to 64 cents a share, according to Thomson First Call.

Despite Catz's comments, PeopleSoft's stock price held at about the current share offer mark. It fell by 28 cents a share, or about 1.28 percent, in afternoon trading on Monday to $21.67--a sign that investors believe that Oracle will pay at least $21 a share to acquire PeopleSoft.

The proposed deal has gained steam since Oracle fought antitrust charges over the buyout plan and won. The U.S. Department of Justice, which brought the case, decided earlier this month not to appeal the ruling.

At about the same time, PeopleSoft unexpectedly fired CEO Craig Conway who had ardently opposed the Oracle bid. Some view Conway's exit as a prelude to friendly merger negotiations between the companies.

The anti-takeover measure at the center of the court case would make a hostile takeover bid more expensive, because it would flood the market with additional shares. That action would make it hard for Oracle, or any acquirer, to buy all the shares needed to obtain a controlling stake in the company. This strategy is one of the few remaining obstacles in Oracle's path.

CNET's Alorie Gilbert contributed to this report.