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IT heavyweights eye the PeopleSoft pie

By Charles Cooper, CNET News, 9 June, 2003 12:40

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bidding war, take over, Microsoft, IBM, Oracle, hostile, Bid, SAP, Peoplesoft, Acquisition

NEWS
Oracle surprised PeopleSoft on Friday with a $5.1bn unsolicited takeover offer. But before this saga reaches its denouement, might a white knight surprise with a counterbid of its own? Now that PeopleSoft has been put into play, the rumour mill has been in overdrive with IBM, SAP and Microsoft all mentioned by analysts as possible candidates. Patrick Snell, an analyst with Robert W. Baird & Co., wrote in a research note that he believes there could be a bidding war involving all three companies for PeopleSoft. Indeed, IBM, which had more than $5.5bn in cash and equivalents at the end of its March quarter, already has a long-standing joint-marketing deal with J.D. Edwards, which earlier this week announced it will be acquired by PeopleSoft. But the odds of a third party emerging from the shadows remain remote, some analysts say. "I can't see IBM getting involved in this," said Bruce Richardson, an analyst at AMR Research. "They have never been successful in the applications market. But they may not want to lose revenue from J.D. Edwards. Still, I can't imagine them doing that." W.R. Hambrecht analyst Richard Petersen agreed, saying he thinks IBM has little interest getting into the applications software business and that it's unlikely that another suitor will jump into the fray. "The only other possible bidder is SAP, and SAP benefits more from standing on the sidelines and watching the carnage than it does by acquiring PeopleSoft," Petersen said. "In any event, SAP does not have a history of making large acquisitions." Richardson initially viewed the Oracle bid as a ploy to derail the pending PeopleSoft-J.D. Edwards deal. He now believes Oracle's bid is genuine, especially given the calibre of the company's advisers. The company recently hired Chuck Phillips, a former Morgan Stanley software analyst, as an executive reporting to and advising Oracle chief executive Larry Ellison. "I can't think that Chuck Phillips would advise Ellison to do this if it wasn't for real," Richardson said. "He wouldn't (mess) with Wall Street." PeopleSoft, like a number of other companies, has a policy in place to make it more difficult for hostile suitors to take over. Often referred to as a "poison pill", the provision calls for more shares to be unleashed -- thereby making it more expensive for an unwanted suitor to acquire the company. PeopleSoft has not yet officially turned down Oracle's offer, though Craig Conway, chief executive of the software maker, dismissed the takeover bid as "atrociously bad behaviour from a company with a history of atrociously bad behaviour." Of course, that may be the opening shot in a campaign to convince Oracle to sweeten its offer. It could also be a prelude to an official rejection. Hostile takeovers in businesses like the software industry are rare, because the prize assets -- employees -- can walk out the door if they don't like the new management. That conventional wisdom could be get put to the test, however, considering that Ellison has made it clear that Oracle has no intention of keeping PeopleSoft alive as a separate brand, should the deal go through. Other companies have taken special steps to avoid bad blood during takeovers. For instance, when IBM launched an unsolicited $3bn takeover of Lotus Development in June 1995, Big Blue chief executive Lou Gerstner, who coveted Lotus Notes' groupware product, paid a special visit to Massachusetts to woo the company's star developer, Ray Ozzie. What's more, Gerstner sweetened the offer to $3.5bn to help clinch the agreement. "Our initial reaction was: How do we fight it?" recalled Richard Eckel, then-director of communications at Lotus. "That very quickly transitioned. Then the strategy became: How do (we) get more money?" Money is often the deciding factor for takeovers. In 1995, SoftKey International launched an unsolicited bid for the Learning Company. Broderbund also had put in a bid to buy the company, but SoftKey ultimately won the bidding war with a $607m deal. The postscript came in June 1998 when SoftKey, which by then had taken the Learning Company name, bought Broderbund for $420m in stock. Computer Associates launched a hostile $9.8bn cash bid in 1998 for consulting firm Computer Sciences. But Computer Sciences' board rejected the offer as insufficient, and Computer Associates gave up after a month of trying. In a twist, Computer Associates found itself on the receiving end of a hostile offer by Texas financier Sam Wyly a couple years later. Wyly sought to break up the company into four separate businesses. But after a bitter proxy battle to replace the board of directors, shareholders stuck with Computer Associates' management. CNET News.com's Ian Fried, David Becker and Mike Ricciuti contributed to this report.
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