Takeover battle likely to drag on as Oracle faces obstacles besides Justice Department in merger quest.
Oracle wasted no time putting PeopleSoft under siege after Thursday's decision by U.S. Judge Vaughn Walker, sending a letter to the company's board that urged PeopleSoft to accept its latest offer. PeopleSoft responded to the ruling by saying it was weighing the implications.
"We believe the pressure has increased on PeopleSoft's board to seriously consider Oracle's $21-per-share offer and negotiate in good faith," Prudential Financial securities analyst Brent Thill wrote in a research note published after the ruling.
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Among Oracle's next hurdles are the potential for an appeal by the U.S. Justice Department and a review of the deal by European regulators. Each of those potential obstacles buys PeopleSoft time to stall the fight, but as a whole they're unlikely to permanently sideline Oracle's takeover attempt, experts said.
The Justice Department has been "dealt a body blow" by Walker's ruling, said attorney Chris Compton, who heads the antitrust practice at Wilson Sonsini Goodrich & Rosati.
"It will be difficult to appeal because...the judge ruled the DOJ failed on a number of points, not just one," Compton said. "On all the key points the government had to prove, the judge said they didn't prove them."
If that reading is correct, PeopleSoft's main defense against the unwelcome buyout is an anti-takeover provision, or "poison pill." The big question is whether PeopleSoft's board will cling to the poison pill in an effort to keep Oracle away or abandon the provision under mounting pressure from shareholders eager to cash in on Oracle's all-cash offer. If enough shareholders favor the merger, PeopleSoft would be forced to come to the negotiating table--a very likely scenario, observers say.
"I think we'll see the (PeopleSoft) board assess the mood of the big institutional investors," AMR Research analyst Jim Shepherd said. "The board has kind of hung their hat on the notion that this was not a good idea because it was an antitrust violation. Now that they don't have that to lean on they're really in the situation that they have to leave it up to the shareholders."
In addition, PeopleSoft may have a hard time signing up new customers because Oracle is threatening to discontinue PeopleSoft's products after the merger. PeopleSoft's sales have suffered over the past year as a result of such fears and the ruling is only going to intensify that problem, one analyst noted.
The court's decision
U.S. Judge Vaughan Walker blasts
the Justice Department's attempt
to derail the PeopleSoft merger.
Oracle is fighting to overturn the poison pill in court, but it could help its case by raising the bid, analysts said. The company has raised and lowered the bid several times, and at one time put a $26-per-share offer on the table.
"A higher bid would facilitate the process--including approval by PeopleSoft's board, the removal of the poison pill, and resolution of a planned jury trial by PeopleSoft against Oracle--and speed the deal's completion," Thill said in his research note.
In another scenario, PeopleSoft could solicit rival bids from other companies in an effort drive up the price and thwart Oracle. Pundits have contemplated a number of possible "white knights" for PeopleSoft, including IBM, Microsoft and Germany's SAP, but they disagree on the likelihood of such an event.
"I don't think IBM wants to be in the applications business," said Meta Group analyst David Yockelson. "Outside of that, it's not clear who would step forward. SAP is quite happy where it's at right now with its ability to sell into the confusion, and I don't see Microsoft stepping in."
Many agree that SAP is the biggest winner in Thursday's ruling. The company, based in Waldorf, Germany, is the market share leader in business applications--programs that help companies with processing orders, updating employee records and handling other administrative tasks. While sales at PeopleSoft and Oracle have stalled in recent quarters, SAP continued to close more deals, billing itself as the safe haven in an uncertain market.
"The happiest guys on the planet right now are the guys sitting in Waldorf," AMR's Shepherd said. "This ruling keeps Oracle tied up and distracted for a long time, and it takes PeopleSoft out of the market."