Oracle chalked up a key victory on Friday in its battle to acquire PeopleSoft, with investors agreeing to sell the suitor 60 percent of PeopleSoft's outstanding shares.
The shareholder vote of confidence keeps the $9.2bn bid on the table, but it far from seals the deal because PeopleSoft, which has rejected the offer, is protected by an anti-takeover provision. The so-called poison pill dilutes the holdings of any hostile buyer that acquires a stake of 20 percent or greater in the company, making an uninvited transaction prohibitively expensive.
"The owners of PeopleSoft have spoken and have overwhelmingly chosen to sell to Oracle at $24 per share," Oracle chief executive officer Larry Ellison said in a statement. "We are prepared to enter into a definitive merger agreement as early as this weekend."
A letter to PeopleSoft's Board of Directors states that Oracle's $24 per share offer is "fully valued" and "clearly fair".
"There is no business execution risk for your shareholders," the letter continues. "It represents a substantial premium to PeopleSoft's true historical trading multiples. There are no alternative bidders or counter offers. Most important, it has now been endorsed by a majority of your shareholders."
PeopleSoft issued a statement on Saturday rebuffing Oracle once again. "PeopleSoft's Board of Directors has met and considered the results of Oracle's unsolicited tender offer and unanimously reaffirmed its previous conclusion that Oracle's latest offer is inadequate and that the company is worth substantially more than the $24 per share offered by Oracle."
PeopleSoft had anticipated the outcome of the shareholder contest and vowed to fight the deal. It defended its stance in its statement on Saturday, saying many shareholders that tendered to Oracle are still hoping for a better price.
"The board believes that a majority of our stockholders agree that Oracle's $24 offer is inadequate and does not reflect PeopleSoft's real value," said George "Skip" Battle, PeopleSoft board member and chairman of its Transaction Committee, in the statement.
"This majority is comprised of stockholders who did not tender their shares, as well as stockholders who tendered but told us that they believe PeopleSoft is worth more than $24 per share," he continued. "We are confident that in the time leading to our 2005 annual meeting, we will continue to demonstrate PeopleSoft's superior value to our stockholders."
By alluding to its annual meeting, PeopleSoft signalled that it's preparing for the next phase of the battle -- a proxy fight for control of its board. To prevail in a proxy fight, Oracle must convince shareholders to elect, at the upcoming meeting, a slate of new board members friendly to its cause. With control of the board, Oracle could then remove the poison pill that now stands in its way.
Friday's victory for Oracle, which was widely expected, comes after weeks of intense campaigning in advance of the offer's 9 p.m. (PT) expiration on Friday. Oracle had promised to walk away from the deal if investors tendered fewer than 50 percent of PeopleSoft's shares.
Oracle must now act quickly to prepare for the proxy fight. The deadline for nominating candidates for the next PeopleSoft board member election is Thursday. With the deadline falling on Thanksgiving Day, Oracle has just three business days left to name its candidates.
Oracle had nominated candidates for PeopleSoft's last election, which took place at the target company's annual meeting on 25 March. But Oracle pulled them after antitrust regulators moved to block the takeover -- a case that the company ultimately won. Oracle has not disclosed its plans for nominating directors in this second go-around.
PeopleSoft has not yet set a date for its 2005 annual meeting.
Yet Oracle is wasting no time arguing its case.
"We believe the combination of Oracle and PeopleSoft is compelling," Oracle said to PeopleSoft's board in Friday's letter. "The joint company will have a larger combined customer base, expanded brand reach, critical mass in more industries, and be able to provide substantially better global support. Most important, the combined company will be more competitive against SAP, Microsoft and a wave of new outsourcing competitors."
Meanwhile, PeopleSoft argued that it's strong enough on its own. The company reiterated on Saturday that it expects to improve its financial picture in the current quarter, with higher profits and revenue compared with a year ago. It anticipates increasing revenue by as much as 8 percent next year and boosting software sales by as much as 10 percent.
Higher bid in the offing?
The big question is whether Oracle will sweeten the $24 a share offer to win the proxy fight. The company has called the current bid its "best and final" offer, but at one point it had offered $26 a share.
One investor indicated his hope that the final price may still be up for negotiation.
"I think the message is that shareholders are not expecting PeopleSoft to remain independent and want the board to negotiate the best price with any qualified buyer," said Peter Schoenfeld, chief executive of P. Schoenfeld Asset Management, which tendered its three million shares of PeopleSoft early in the week.
Oracle may avoid a proxy fight if a Delaware court judge rules in its favour and invalidates PeopleSoft's poison pill, as Oracle has demanded. A ruling in that case is not expected until next year, and experts say judges rarely interfere with poison pill provisions, making a proxy fight a more likely conclusion to this epic conflict. A hearing in that case is scheduled for Wednesday.
Oracle also announced it would extend the close of the tender offer until the evening of 31 December. The company, however, did not give a reason as to why it would extend its offer, when it had already achieved the 50 percent majority it had been seeking.
"Oracle wants to impress the Delaware Chancery Court judge that an overwhelming majority of shareholders tendered, so Oracle wants the highest number possible," said Tom Ball, a proxy solicitor with Morrow & Co. "Fifty percent gets them over the threshold they said they needed. But once you get over 70 percent, then it's an overwhelming majority."
In a separate case, Oracle plans to fight charges from PeopleSoft alleging that it launched the takeover bid in June 2003 primarily to damage its rival. That trial is scheduled to begin in California Superior Court in Alameda County on Jan. 10.
One of Oracle's primary reasons for buying PeopleSoft is access to lucrative maintenance fees paid by customers. But, should Oracle prevail in acquiring PeopleSoft, there's no guarantee that customers will stick around.
Oracle says it will maintain PeopleSoft's product lines, despite earlier comments to the contrary. But it hasn't committed to continuing software that PeopleSoft acquired through its purchase of rival software maker J.D. Edwards.
In a survey of 150 PeopleSoft customers conducted by AMR Research last week, 63 percent said they would stop paying maintenance fees either immediately or if Oracle decides to stops improving the products, assuming they can find third-party support. The majority of customers surveyed are former J.D. Edwards customers, AMR said.
AMR said the results are an "obvious vote of no confidence" in Oracle as a steward of customers' business software.
CNET News.com's Dawn Kawamoto contributed to this report.
