PeopleSoft's board of directors has rejected Oracle's revised hostile bid, saying it believes the company is worth more than $26 a share.
Oracle raised its cash offer for PeopleSoft last week, presenting its rival's shareholders with a $9.4 billion hostile takeover bid.
In citing its rejection of Oracle's revised bid, PeopleSoft on Monday said the company is currently trading at the low end of its historical valuation range, based on its forecast for future earnings. The company attributed the low valuation range to the uncertainty created by Oracle's bid.
"The board believes PeopleSoft has a better plan for stockholders. Oracle's offer does not begin to reflect the real value, including the value we are creating through our successful combination with J.D. Edwards," Craig Conway, chief executive of PeopleSoft, said in a statement. "We believe Oracle is using the entire process--tender offer, antitrust and proxy solicitation--in an attempt to damage our company. Don't underestimate the significant additional value PeopleSoft can create once the disruption from Oracle's hostile activities has ended."
PeopleSoft said that Wall Street analysts are predicting that its stock will reach $26 a share in the next 12 months. According to Thomson First Call, analysts expected the company's share price to reach anywhere from $15 to $27 a share in the next 12 months, prior to Oracle raising its bid to $26 a share.
Oracle's revised bid also values its competitor at a price below the current rate currently being paid in other large transactions in the enterprise software industry, PeopleSoft stated.
In response to its rejection by the board, Oracle appealed directly to investors in its rival, urging them to think carefully about PeopleSoft's earnings prospects if it remains independent.
"Since PeopleSoft's current directors persist in their refusal even to discuss the offer with Oracle, PeopleSoft stockholders can act in their own best interests by tendering their shares and voting to elect the slate of five independent directors to the PeopleSoft board," said Jim Finn, Oracle spokesman.
Although PeopleSoft's board has rejected the deal, investors may still force the issue by electing Oracle's slate of dissent directors. That would change control of the board and likely lead to PeopleSoft moving toward a friendly merger with its archrival.
A vote to elect PeopleSoft's directors will be held March 25, during the company's annual shareholders meeting.
Oracle, however, still has to receive regulatory approval to complete the merger, whether or not its slate of directors is elected. The company said it expects to hear from the U.S. Department of Justice by March 12 as to whether it will challenge its merger proposal.
The European Commission's antitrust regulators are expected to make a decision on the proposal sometime after April. European regulators have delayed their review of the deal, as they await more information from Oracle.
One large institutional investor, who spoke on condition of anonymity, was disappointed to see PeopleSoft's board reject the revised bid, but was not surprised given the contentious nature of the proposed merger.
"The board is going to have to really explain how they get to a higher value than the $26 price and a bigger revenue number," the portfolio manager said. "And their explanation can't be that they just think IT spending will be going up 17 percent for the industry...That is too subjective."
"Twenty-six dollars a share seems like a good number. I would have been happy with anything in the mid-to-high twenties," the investor added.
PeopleSoft's board and a subcommittee comprised of independent directors met two times to discuss the revised bid before rejecting the offer, according to a filing with the Securities and Exchange Commission on Monday.
Before Oracle raised its bid to $26, the portfolio manager sold some PeopleSoft shares.
"I've been opportunistic. And once Oracle raised it (the share offer) to $26, I've been very opportunistic," the investor said.
At the close of trading on the Nasdaq, PeopleSoft shares were down 53 cents, or about 2 percent, to $22.22, and Oracle shares were down 14 cents, or just over 1 percent, to $13.28.