In a widely expected move, PeopleSoft’s board of directors Thursday voted unanimously to recommend that stockholders reject Oracle’s unsolicited $5.1 billion bid to purchase all of the outstanding shares of PeopleSoft for $16 per share in cash.
The Pleasanton, Calif. company’s board said it came to the conclusion because they felt the offer would face lengthy antitrust scrutiny from the U.S. Department of Justice, or even the European Commission, with the likelihood that the deal would not be approved.
The board cited a confluence of issues, most notably that the uncertainties created by Oracle’s offer, along with Oracle’s plan to discontinue PeopleSoft’s products, harms stockholder value. PeopleSoft’s board also said the offer “dramatically undervalues” based on its financial performance and market position. The board further embraced PeopleSoft’s planned acquisition of J.D. Edwards.
“Oracle’s offer seeks to enrich Oracle at the expense of PeopleSoft’s stockholders, customers and employees,” said PeopleSoft President and Chief Executive Officer Craig Conway in a public statement. “We believe that Oracle’s proposed acquisition of PeopleSoft would stifle competition and limit customer choice. PeopleSoft remains steadfastly focused on providing our customers with superior products and services, and we will not let Oracle’s tactics interfere with our business.”
Jon Derome, program manager of the Business Applications and Commerce practice at Yankee Group, was not surprised by the board’s decision, but said the move was hardly the endgame.
“At a 6 percent premium and with plans to shelve PeopleSoft’s business, Oracle’s initial announcement was clearly unacceptable,” Derome said. “But I don’t think this is the end of the story. Oracle has the incentive and the resources to put a more acceptable offer on the table. Larry shocked PeopleSoft and the market with his initial statements. He can use the advantage he’s gained to negotiate better terms if he’s serious about the acquisition. His moves read like a page from the Art of War, a reported favorite for Mr. Ellison.”
Forrester Research analyst Paul Hamerman said PeopleSoft’s next challenge is to get the shareholders to vote for the rejection as quickly as possible. But even then, Hamerman said, Oracle cannot be counted out because they can boost the bid price, or appeal to court to get the poison pill — the mechanism in which a company issues more shares to make it more expensive to acquirers — removed.
“Even if they fail, Oracle has accomplished something,” Hamerman said. “They’ve disrupted PeopleSoft’s sales cycle.”
That the board voted in such a strident fashion, a day after canceling planned legal action to halt the bid, comes as no surprise to many in the industry. The decision comes four days after J.D. Edwards President, Chairman and CEO Bob Dutkowsky held a press conference in Denver, lambasting Oracle’s aggressive play.
Myriad analysts have said the move by Oracle would do nothing but instill fear and uncertainty in the business applications market, where Oracle, PeopleSoft, J.D. Edwards compete, along with market leader SAP and Siebel Systems. Simply, enterprises put so much capital and time into laying a foundation for these applications, which span financial industries to human resource departments and supply chains, that customers would be frozen into uncertainty.
Deutsche Bank Securities said it expects PeopleSoft’s sales quarters for the last three weeks of June to be disrupted because of the lingering issues.
“We believe that new deal flow has come to a virtual halt and that customers are postponing plans to continue existing implementations until questions about PSFT’s long-term stability/viability become more clear,” the research firm said.
Does anyone benefit from this market chaos? It’s possible, analysts say. Through all of this, SAP is girding up for an advertising campaign to lure customers to its already large fold.
“SAP benefits from this,” Hamerman said. “They just came out with their own marketing campaign to lure customers from PeopleSoft and J.D. Edwards, where they’re saying ‘we’re the strongest.'”