JD Edwards Sues; PeopleSoft Spurns Oracle
UPDATE: J.D. Edwards sues Oracle & Larry Ellison seeking billions in damages but Oracle wants shareholders, not courts, to decide; meanwhile, PeopleSoft unequivocally rejects Oracle's bid.
filed a $1.7 billion suit against Oracle and its two top executives in state courts in Colorado and California Thursday -- the same day that Peoplesoft formally rejected Oracle's unsolicited $5.1-billion bid.In its lawsuit, J.D. Edwards is claiming that Oracle and the plaintiffs "tortiously interfered" with its proposed merger with PeopleSoft, which was announced one week prior to the Oracle offer.
In response, Oracle issued a brief statement: "We have just heard of this lawsuit. Clearly PeopleSoft and JD Edwards prefer to fight in the courts than let shareholders decide. We believe that this case has no merit whatsoever," Oracle spokesman Jim Finn said in the prepared remarks.
The Colorado suit seeks $1.7 billion -- the cost in stock PeopleSoft would have exchanged to purchase J.D. Edwards -- in compensatory damages and an unspecified amount in punitive damages. J.D. Edwards is also filing suit in California state court against Oracle, Oracle Chairman and CEO Larry Ellison and Oracle Executive Vice President Chuck Phillips, claiming that they have engaged in wrongful conduct and unfair business practices.
Denver-based J.D. Edwards is also seeking an injunction to stop the Redwood Shores, Calif.-based database software giant from proceeding with its tender offer for PeopleSoft.
"Oracle's sole aim is to disrupt a merger that will create value for the key stakeholders of J.D. Edwards and PeopleSoft," said Bob Dutkowsky, Chairman, President and CEO of J.D. Edwards in a public statement. "Oracle's unsolicited offer for PeopleSoft will only destroy value for our companies' shareholders, customers and employees and the technology community overall. We will not sit by idly while Oracle pursues this arrogant, unlawful and destructive course of action."
The defensive move by J.D. Edwards is the latest in a series of lunges and parries between Oracle and J.D. Edwards and PeopleSoft, which announced earlier Thursday that its board voted unanimously to recommend that stockholders reject the $5.1-billion unsolicited offer to purchase all of outstanding shares of PeopleSoft for $16 per share in cash.
The move was widely expected. PeopleSoft President and Chief Executive Craig Conway and Executive Vice President and CFO Kevin Parker, presided over a conference call to address the board's decision, but refused to speculate on the future of all the parties involved because filings with the Securities Exchange Commission are underway.
But after brushing off most questions about how PeopleSoft might be affected by Oracle's move, Conway later wondered what might happen to Oracle after the fallout.
Parker, who refused to discuss PeopleSoft's "poison pill" -- the mechanism in which a company issues more shares to make it more expensive to acquirers -- on the call, said the board 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.
Parker said 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, harm customers and stockholder value. PeopleSoft's board also said the offer "dramatically undervalues" the company based on its financial performance and market position. The board further embraced PeopleSoft's planned acquisition of J.D. Edwards.
Conway did stress the reaction around the industry, explaining that customers have told PeopleSoft's sales force that they are either "empathetic, sympathetic, surprised, and in some cases, outraged," by Oracle's behavior. He described this as "invigorating" for PeopleSoft.
"Oracle's offer seeks to enrich Oracle at the expense of PeopleSoft's stockholders, customers and employees," Conway said. "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."
However, Conway did wax hypothetical on how the turmoil may affect other software vendors, notably SAP, Microsoft and IBM. He acknowledged SAP, who Thursday embarked on an advertising campaign to lure customers to its products, is unlikely to "sit on their hands" when they can take advantage of industry uncertainty concerning PeopleSoft and J.D. Edwards.
Conway also said he anticipates Oracle's manuever may backfire, paving the way for IBM, and perhaps even Microsoft, to eat away at some of Oracle's 9i database 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 told internetnews.com. "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 removed.
"Even if they fail, Oracle has accomplished something," Hamerman told internetnews.com. "They've disrupted PeopleSoft's sales cycle."
Parker refused requests to clarify the company's posion pill during the call.
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 own marketing campaign to lure customers from PeopleSoft and J.D. Edwards, where they're saying 'we're the strongest.'"
Meanwhile, copies of the complaints will be available on J.D. Edwards' Web site.
In related news, Oracle announced that it beat earnings and revenue estimates Thursday, with earnings growth of 31 percent and revenue growth of 2.1 percent from a year earlier. Reported revenue for the quarter was $2.83 billion and net profits reached $858 million, or 16 cents a share, compared with $656 million, or 12 cents a share, in the same period last year.
The company also said sales of new software licenses rose for the first time in more than two years. In a public statement, Ellison said his company's applications new software license revenues were flat at $246 million and alluded to market share taken from PeopleSoft.
"Many of our major competitors showed significant license revenue decline in their most recently reported quarter," Ellison said. "For instance, in PeopleSoft's most recent quarter their applications new license revenues decreased 39% to $80 million. We believe that our growth and PeopleSoft's decline resulted in part from an increase in our competitive win rate over PeopleSoft, and the fact that we are beginning to replace PeopleSoft at a number of major accounts."
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