PeopleSoft's Poison Pill Puts the Lawyers in Charge

Larry Ellison's increasingly rich blandishments to PeopleSoft's(PSFT) shareholders and customers may be a waste of time. PeopleSoft has built a formidable set of antitakeover defenses that make it all but impossible for stockholders to overrule management and sell the company without a major win in court.

"They're nearly bulletproof," said Patrick McGurn, senior vice president of Institutional Shareholder Services.

According to people close to the deal, PeopleSoft has erected a multilayered defense to keep would-be takeover artists at bay -- and its much-talked-about poison pill is only the beginning. Here are the major obstacles Oracle(ORCL) will need to breach:

The poison pill: The board of directors has the right to take measures that will dilute PeopleSoft stock so much that a takeover would become prohibitively expensive.

Inability to call a special meeting: If shareholders wanted to stop management from exercising the poison pill, the only place they could force such a vote would be at the next annual meeting -- 11 months away. Shareholders don't have the power to call a meeting over the heads of the board.

No action by written consent: Shareholders can't launch a proxy fight outside a meeting called by the board.

Staggered board terms: It would take at least two years to replace a majority of PeopleSoft's board.

Sound unusual? "Unfortunately, with the wave of antitakeover provisions, all those defenses are increasingly common," said McGurn, whose company analyzes proxy-related issues for public companies.