Oracle ups PeopleSoft offer to $24 per share

The Redwood Shores, Calif., database giant says it will drop the acquisition plan it has pursued since June 2003 if PeopleSoft shareholders don't tender at least half the outstanding stock by the Nov. 19 deadline.

"We believe this offer is substantially higher than where PeopleSoft shares would trade without the offer," Oracle Chairman Jeff Henley said during a conference call with analysts on Monday. "The $24 a share is our highest offer, and it's a 60 percent premium over PeopleSoft's shares when we commenced our offer."

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Proxy experts called Oracle's threat--to pull out if 50 percent of the shares are not tendered--a bold move.

"To put out an ultimatum that they will walk is a pretty strong statement," said Rick Grubaugh, senior vice president of proxy solicitation firm D.F. King & Co. "But sometimes it's the only way you can get shareholders to tender if they think the expiration date will be extended."

PeopleSoft advised its investors to hold onto their stock until the company's board of directors can evaluate the amended offer and make a recommendation. PeopleSoft shares were up $2.20, or 11 percent, at $22.97 in Monday morning trading.

Swallowing the poison pill?
The most recent of Oracle's four bids had been $21 per share, or $7.7 billion. At $24 a share, Oracle's offer now stands at $8.8 billion. The new bid, still below an earlier offer of $26 per share, comes a week after the last of the regulatory hurdles had been removed when the European Commission approved the merger plan. Oracle, in raising its offer price, is now hoping to remove the last major obstacle to the deal--the poison pill.

PeopleSoft's poison pill provision, a defense against hostile takeovers, would flood the market with shares if Oracle were to acquire a significant stake. This would presumably raise Oracle's acquisition cost to a prohibitive level.

If PeopleSoft's board of directors does not voluntarily remove the poison pill, Henley said, Oracle's next move will be to await the decision of the Delaware Chancery Court, which has yet to rule on Oracle's lawsuit to overturn the policy.

Proxy experts say the Delaware court has rarely, if ever, forced a company to remove its poison pill. If the court leaves the policy in place, Oracle may try an end run, proxy experts say.

"There's been numerous times when this has happened in hostile takeovers," Grubaugh said. "The takeover company will usually try to get their dissident slate of directors elected, who'll later remove the poison pill."

Devil in the details
Oracle also has to contend with keeping its own shareholders happy. The company is not only raising the price it is paying for PeopleSoft, but Henley acknowledged Oracle has since learned of additional costs it will face in operating as a merged company. Further, Oracle plans to walk a tightrope with PeopleSoft products if the acquisition succeeds.

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"We'll put some new functionality into the (next) upgrade, but we still don?t plan to actively market new PeopleSoft products," Henley said.

By assigning a new version number to that planned upgrade, PeopleSoft 9, Oracle would try to walk a fine line of offering enough enhancements to keep PeopleSoft customers paying their annual maintenance fees, without spending too much on improving a software line it wants to discontinue.

"Oracle has made some assumptions of how much the PeopleSoft customer base would be willing to pay for maintenance and for how long and for how much," said Jim Shepherd, an analyst with AMR Research. "If the maintenance revenue erodes much faster than they were thinking, then they would have paid too much for the merger."