PeopleSoft guarantees may be costly

Oracle may find itself on the hook for $354 million in PeopleSoft customer protection guarantees.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
2 min read
Oracle may find itself on the hook for $354 million in PeopleSoft customer protection guarantees if it succeeds in its hostile bid for PeopleSoft, according to a securities filing Thursday.

PeopleSoft created the Customer Protection Program to ease concerns by current and potential customers over whether their PeopleSoft investment would be safe after an Oracle merger.

When Oracle announced its hostile takeover bid last month, the software company said it intended to discontinue developing PeopleSoft products and would only offer support.

Under the program, PeopleSoft customers can receive roughly two to five times their money back on the standard perpetual licensing arrangement, provided that several events occur. One is that PeopleSoft undergoes a change in control within the first year a customer's contract takes effect and the acquiring company--within two years of the contract taking effect--engages in one of three actions.

Those triggers include the acquirer announcing plans to discontinue support services prior to the end of PeopleSoft?s normal support term, stopping the licensing PeopleSoft's products to new customers, or not providing updates or new releases for supportable products.

PeopleSoft announced preliminary second-quarter results Wednesday, which indicated its earnings and sales would be better than Wall Street's current estimates. The company cited the customer guarantee program as helping to drive sales, noting that it was included in more than half of its contracts in the quarter. Based on the maximum potential amount of future payments under the guarantee program, Oracle, or any other acquirer, could be liable for roughly $354 million in payments.

However, PeopleSoft noted in its filing with the Securities and Exchange Commission that "the company believes the likelihood of the Customer Protection Program being exercised not to be probable."

Also, because the guarantee could be triggered only after PeopleSoft had been sold, the program has no financial effect on PeopleSoft.

Oracle representatives declined to comment.