9 June 2003 PeopleSoft CEO Craig Conway issued an angry rebuttal of Oracle’s $5.1 billion hostile takeover late on Friday, and then spent most of the weekend in a series of discussions aimed at building a defence and limiting any damage.
At the same time, industry and financial analysts were working overtime producing a raft of advisory reports for investors and customers. The big debate centres on two issues: Is Oracle serious? If so, will PeopleSoft be able to put up a strong defence?
There have only ever been two hostile takeover battles on this scale in the software and services industry. In 1991, IBM launched a $3.5 billion bid for Lotus Development Corp — which Lotus initially fought, but after a week agreed to; and in 1998, Computer Associates was forced to drop its $9 billion bid for services supplier Computer Sciences Corporation (CSC) after strong resistance and question marks over its ability to raise the finance.
With PeopleSoft’s shares shooting up by a fifth — far above Oracle’s offer — it is already clear that Oracle will have to pay much more than the 6% premium on PeopleSoft’s closing share price before the bid was announced. But Oracle has $6 billion in cash, and, because the company is profitable and says the deal is likely to accretive to earnings, could easily pay much more.
Conway, who described the bid as “diabolical” and “atrocious behaviour from a company with a history of atrocious behaviour”, made it clear he thinks the bid is not serious and is an attempt to undermine PeopleSoft and scupper its own $2 billion agreed acquisition of JD Edwards, announced at the beginning of the week.
While the Oracle bid is active, the JD Edwards deal is unlikely to be completed.
PeopleSoft is particularly galled that Oracle CEO Larry Ellison has said that should the merger go through, it would not develop the PeopleSoft product line. Instead, it would try and move customers onto Oracle’s ebusiness suite.
Although Oracle’s applications business is bigger than PeopleSoft’s with 2003 revenues of $2.6 billion against PeopleSoft’s $1.9 billion, both companies have suffered a slowdown in new licence sales. PeopleSoft claims to have overtaken Oracle in new licence sales.
In a worrying development for PeopleSoft, Gartner analyst Ted Kempf advised PeopleSoft customers to hold off major buying decisions until the outcome is clearer. “My recommendation to people would be to hold tight…I wouldn’t make any massive purchases right now.”
PeopleSoft says it will sue Oracle for damages if new sales are affected.
With PeopleSoft apparently determined to fight the bid, any resolution could take some time — unless a new bidder emerges. IBM, Microsoft and SAP all seem unlikely buyers, for a variety of regulatory and strategic reasons.