PeopleSoft extends customer refund program

In a filing with the Securities and Exchange Commission, the company said that its so-called customer assurance program will continue until Dec. 31. The disclosure could stand as a major obstacle to a $7.3 billion cash offer from rival software maker Oracle for PeopleSoft, a maker of enterprise business applications.

The SEC filing postdates Oracle's recent announcement that it will consider scuttling its hostile bid for the company based on the amount of money it would owe PeopleSoft's customers as a result of the refund plan.

Last week, PeopleSoft's legal counsel said that terms of the refund program had already expired and indicated that the company's board of directors would decide whether to continue it in some form. In an earlier SEC filing, PeopleSoft estimated the cost of the customer assurance program, if triggered, at a minimum of $800 million.

However, Oracle spokesman Jim Finn said Wednesday that his company remains committed to completing the PeopleSoft acquisition, despite calling the latest additions to PeopleSoft's refund program a "misleading gimmick."

"We think this is just another form of a poison pill designed to thwart a takeover," Finn said. "The customer assurance program is an attempt to devalue the company, and there's a trend here toward repeatedly restructuring the deal to keep (PeopleSoft's) shareholders away."

PeopleSoft introduced the money-back guarantee after Oracle launched its tender offer in June, and it also recently extended the plan's terms. Under the program, qualified PeopleSoft customers would receive refunds of two to five times the price of their software license fees, if the company were acquired, and if any acquiring entity stopped selling PeopleSoft's products.

The assurance program would go into effect if PeopleSoft were acquired any time over the next two years. If potential buyers of the company ceased supporting PeopleSoft products anytime during the next four years, they could be forced to pay customer refunds.

PeopleSoft repeated its previously stated sentiment that any real threat of an Oracle takeover "has passed." However, company spokesman Steve Swasey said all the attention being given to the deal by the media and elsewhere has encouraged PeopleSoft to revisit the customer assurance program in order to keep customers feeling secure about buying new products. Swasey said that concern among PeopleSoft customers peaked after Oracle Chief Executive Larry Ellison stated his intention to move customers to his company's eBusiness Suite package in June, but added that some buyers are still asking for the potential refund.

On Monday, PeopleSoft changed some terms of the program related to the makeup of its board of directors. The plan had previously called for the customer assurance program to be triggered in the event of a change in majority control of PeopleSoft's board. Under the latest terms, the refunds would only be awarded if the change in majority control came as a result of an acquisition.

Swasey said PeopleSoft meant to word the conditions regarding its board of directors as they now appear. He said the conditions submitted to the SEC in the original version of the plan were incorrect due to a "clerical error." Oracle's Finn called it a "convenient excuse" and said Monday's filing was another attempt by PeopleSoft to mislead shareholders.

Oracle is seeking to remove a PeopleSoft antitakeover measure, otherwise known as a poison pill, as well as its use of the customer guarantee program in ongoing legal proceedings.

San Francisco-based investment bank JMP Securities issued a note to investors questioning the value of the customer assurance plan to PeopleSoft shareholders and called the accounting practices related to the program "opaque." JMP said that it believes the refund offer will reduce the amount of money that any company that acquires PeopleSoft would be willing to pay to the software maker's shareholders.