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PeopleSoft investors want more cash

Oracle will have to raise its increased offer for the business software maker even higher if its wants to succeed, investors say.

Although Oracle raised the price of its hostile takeover bid for PeopleSoft on Wednesday, the database giant needs to go even higher if it wants shareholders to bite, say several PeopleSoft investors.

Institutional investors say they would want to see an offer well in excess of $20 a share before they consider tendering their stock to Oracle. As for Oracle, it needs to listen to investor sentiment to secure success for its tender offer, which now stands at a cash offer of $19.50 per share, or $6.3 billion in total.

"We bought PeopleSoft shares in the past few days, because we felt the offer was going to get raised. If Oracle really wants this property, it's well worth more than what they are offering now," said Pat Adams, a portfolio manager with Fort Collins, Colo.-based Choice Investment Management, which has a PeopleSoft investment in its $12 million Focus Fund. "I think they need to offer $25 to $30 a share, since it's a hostile offer."

PeopleSoft's shares ended Wednesday up 78 cents, or about 4.5 percent, at $17.95.

Adams, who has watched a number of hostile takeovers in several industries over the years, said that typically, a low bid is made as an initial offer. A second offer is then made, designed to demonstrate the seriousness of the buyer, followed by a third and possibly fourth offer that reflect how far the suitor is willing to go to acquire the company, he added.

Another portfolio manager, Eli Salzman of Lord Abbett, believed Oracle Chief Executive Larry Ellison needed to up the ante beyond the $20 range, even before the Redwood Shores, Calif.-based database maker increased its bid per share to $19.50 from $16.

"I think Larry has to pay well into the twenties before we'd consider a PeopleSoft and Oracle merger," said Salzman in a recent interview with CNET News.com. The New York-based money management company held a 1.73 percent stake in PeopleSoft as of March 31.

PeopleSoft declined to comment on Oracle's revised buyout offer and said it will make a statement after the company's board of directors has reviewed the offer and made a decision.

Oracle was not available for comment.

Under the tender offer, PeopleSoft investors can submit their stock certificates--either directly or through a broker--to Oracle's depository agent.

While the stock certificates are in the depository, investors will still retain ownership of them. As a result, they will still receive any dividends, or investor information, that PeopleSoft mails to shareholders. In addition, investors can change their mind about tendering their shares and request the stock certificates be returned, according to Thomas Ball, senior managing director with Morrow & Co., a New York-based proxy solicitation firm.

Oracle has set a July 7 deadline for PeopleSoft shareholders to tender their shares to the depository, but often companies will extend that deadline to allow themselves more time to accumulate than 50 percent of the shares trading on the market.

Once a prospective buyer has amassed more than 50 percent of the shares, it will use that majority to try to get a target company's board to remove its shareholder rights plan, or "poison pill."

After a tender offer deadline passes, the tendered shares are returned to the investors. That's because no hostile buyer has ever been willing to take the next step and purchase the tendered shares, for fear of triggering the "poison pill," Ball said.

PeopleSoft's board enacted its poison pill, so only its directors, rather than its shareholders, can remove the measure.

If a prospective buyer acquires 20 percent or more of the company's outstanding shares, PeopleSoft's shareholder rights plan is triggered. This results in PeopleSoft issuing a flood of new shares, diluting the stake of a hostile suitor such as Oracle and making it prohibitively expensive to purchase the extra shares needed to regain that 20 percent stake, he said.

"That's why it's called a poison pill. It's deadly if triggered," Ball said.