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Oracle, PeopleSoft Slide on Fate of Takeover

By Jim Wagner     Feedback

UPDATE: Shares in both companies took a dip Tuesday as investors pondered whether Oracle may actually withdraw its PeopleSoft acquisition plans.

Investor reaction was mixed Tuesday a day after Oracle said it might have to drop its $7.3 billion hostile bid for PeopleSoft over the enterprise software company's licensing/rebate plans.

On a light trading day Tuesday due to the Veteran's Day holiday, shares of Oracle had slipped by 13 cents during the day but recovered to close at $12.54, down 3 cents, a day after it asked a Delaware court to hasten its request for an injunction against PeopleSoft's licensing plan that it claims is an anti-takeover ploy.

In after hours trading shares were headed back up. PeopleSoft slipped by 43 cents to end the day at $21.62 but it share price was also headed up in after hours trading.

On Monday, Oracle asked a federal court to expedite its lawsuit that seeks to bar PeopleSoft from offering refunds of between two to five times the license fees customers pay -- if Oracle is able to acquire the company. According to Oracle, PeopleSoft's program is nothing more than a "poison pill" provision to thwart a takeover.

Oracle isn't happy with PeopleSoft's customer assurance program, and filed with the Delaware courts Monday afternoon saying the program likely makes any takeover bid too expensive.

Market watchers read skepticism in the market's reaction. . You'd think if they really believed that it wasn't going through, Oracle would be up and PeopleSoft down big. The other possibility is that investors now believe in a tech recovery, so they're willing to give PeopleSoft a higher valuation than they were a few months ago. The market as a whole is certainly higher than it was when Oracle first made its play.

PeopleSoft's customer assurance program, which was expanded two weeks ago, is a source of consternation among Oracle executives. The program refunds PeopleSoft customers between two to five times the price of their original license if the software is discontinued or support is taken away in the event of acquisition by other companies.

A group of PeopleSoft shareholders filed suit last week through the Delaware Court of Chancery against the PeopleSoft board of directors to combat the refund program.

The Oracle filing is an amendment to its June lawsuit paperwork against PeopleSoft, and now includes many of the issues brought up by the PeopleSoft shareholders, said Deborah Lilienthal, an Oracle spokesperson.

Oracle officials said the recent changes to the program amounts to a poison pill, driving the cost of the hostile takeover beyond their reach. PeopleSoft officials estimate the potential liability for its refund program to be around $800 million.

But Steve Swasey, a PeopleSoft spokesperson, defended the program, saying that Oracle doesn't have anything to worry about it if truly intends to continue supporting PeopleSoft/J.D. Edwards customers.

"Contrary to Oracle's assertions, PeopleSoft is acting in the best interests of its shareholders," he told internetnews.com. "This management team has continued to put shareholders first. This program allows customers to invest with confidence in PeopleSoft products, and that's not only good for customers, it ultimately increases shareholder value."

The Department of Justice is continuing an anti-trust review of the Oracle bid and is expected to issue an opinion by the end of the year.

This article was originally published on November 11, 2003
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