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PeopleSoft v. Oracle: Game Over?

By Cynthia L. Webb
washingtonpost.com Staff Writer
Monday, October 4, 2004; 10:23 AM

Talk about a great day for Oracle Corp. founder Larry Ellison.

The unexpected ouster Friday morning of PeopleSoft chief executive Craig Conway sent a strong signal that the business software maker's board is preparing to acquiesce to Oracle's unsolicited takeover bid. Hours later, the U.S. Justice Department announced that it will drop its legal efforts to block a combined Oracle-PeopleSoft, clearing yet another obstacle for Ellison & Co.

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So was Conway's firing really all about the Oracle fight? According to The New York Times's Saturday piece, the PeopleSoft board "said the decision was unrelated to the $7.7 billion bid by Oracle, but analysts said the dismissal opened the door for the company to be acquired. Mr. Conway has been a vigorous opponent of the Oracle hostile bid since it was first made in June 2003." The Times picked up a quote from Lynn Stout, a University of California Los Angeles corporate law professor, who said the firing "was a 'clear signal that the board is preparing to cave.' She added that PeopleSoft's business has suffered considerably since Oracle made its offer nearly a year and a half ago."
The New York Times: Change of Direction At PeopleSoft (Registration required)

"Executives close to PeopleSoft said that while Mr. Conway's aggressive approach to the Oracle offer was a consideration in his removal, frustration with his handling of strategic business issues was also part of his undoing. Most notably, PeopleSoft's acquisition of J. D. Edwards in 2003, a project that Mr. Conway led, is largely considered a failure. The company has also been slow to give customers a clear plan for the future, the executives said," the New York Times reported. The Los Angeles Times explained that PeopleSoft founder and Chairman David Duffield, on the other hand, has received good reviews. "There's no dispute that [Ellison and Conway] don't like each other. That would have made negotiations tough if they're both trying to squeeze every last drop of blood out of each other. Dave is going to be much easier to negotiate with, which will be better for both parties," Friedman Billings Ramsey analyst David Hilal told the paper.
The Los Angeles Times: PeopleSoft Dumps CEO For Co-Founder (Registration required)

The San Jose Mercury News noted that Conway was given free rein to run PeopleSoft when he was brought on in 1999. "What changed?" the newspaper asked. Well... "People who have watched Conway over the 16 months since Oracle launched its takeover bid said Conway had grown hostile to his own managers and refused to collaborate. His staunch defiance of Oracle's bid may also have become a liability as legal decisions continue to line up in favor of Oracle." And maybe the board wanted to avoid putting Conway on the stand in Delaware this week: "People familiar with the Oracle-PeopleSoft battle said Conway also had provided testimony that would likely reflect badly on PeopleSoft's board and management. That testimony could be revealed in a trial scheduled to start Monday in Delaware Chancery Court. Oracle has asked the court to remove PeopleSoft's poison pill and void a customer rebate program that would cost any buyer of PeopleSoft as much as $2 billion."
San Jose Mercury News: Why Conway Was Shown the Door (Registration required)

Just a Matter of Time...

Now "that the Department of Justice is no longer fighting the deal, a takeover is almost inevitable, says equity analyst David Hilal with Friedman Billings Ramsey," USA Today reported. "PeopleSoft is most certainly moving in the direction of negotiating a deal with Oracle," Wedbush Morgan Securities analyst Nathan Schneiderman told the Los Angeles Times. "They see the writing on the wall. It's just a matter of price now."
USA Today: PeopleSoft's Founder Returns To Uncertainty

PeopleSoft said Conway's termination was decided prior to the Justice Department announcement and reiterated that, so far, the board has rejected Oracle's offers, including the $21-per-share offer on the table.

The Wall Street Journal, however, focused on how the market pros viewed Conway's removal, noting "investors interpreted Mr. Conway's ouster to mean Oracle is more likely to complete the acquisition. On Friday, PeopleSoft shares jumped 15 percent, or $2.98, to $22.83 each, well above Oracle's $21 a share offer, indicating that Oracle may be forced to raise its bid to close the deal. The shake-up came on the eve of a trial beginning today in Delaware where Oracle wants to force PeopleSoft to redeem its 'poison pill' antitakeover provision. Oracle will seek to show that Mr. Conway, and not PeopleSoft's board, had led the company's resistance to the takeover. Mr. Conway still is expected to testify at the trial."
The Wall Street Journal: PeopleSoft Firing May Aid Oracle Deal (Subscription required)

BusinessWeek surmised that Duffield will ultimately hand the keys over to Oracle: "In the short term, some believe that Duffield will fight. He has a strong emotional connection to the company he founded. And as the largest shareholder, he's PeopleSoft's counterpart to Ellison, with more credibility and negotiating leverage than a hired CEO. But the odds are that PeopleSoft is wearying of the battle, realizes it has lost its antitrust argument, and is preparing to head to the bargaining table. After all, a good portion of Wall Street has deemed the deal's price tag a good one for PeopleSoft's shareholders, and the board's job is to act in their interest."
BusinessWeek: PeopleSoft May Be Ready to Fold

Oracle's Day In Court

Oracle execs must be hoping they can swoop in for the kill this week, as their trial against PeopleSoft starts today in Delaware. Oracle Chairman Jeffrey Henley said in a statement that the DOJ decision "affirms our longstanding belief that the transaction is not anti-competitive. We are now looking forward to the trial in Delaware of our claims against the PeopleSoft board of directors for their actions over the past year which have seriously damaged, and continue to damage, shareholder value."

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