Another Wrench in Oracle's Merger Machine

PeopleSoft's (PSFT Quote) unexpectedly strong second-quarter showing won't stop Oracle's (ORCL Quote) hostile takeover attempt. But it will make the buyout more expensive, and adds yet another layer to PeopleSoft's already formidable defenses.

Analyst David Hilal of Friedman, Billings, Ramsey & Co., Inc. called the upside surprise "another blow to Oracle," and said, "This will make it that much harder for Oracle to convince PeopleSoft shareholders that they should tender their shares."

After all, a large part of Oracle's pitch to shareholders is that PeopleSoft needs to be rescued from a management team that led the company to a run of bad quarters.

Indeed, an Oracle spokesman said just that a few hours after PeopleSoft made its surprise announcement before the market opened on Wednesday: "We believe that five straight quarters of declining results are a better indication of the underlying condition of PeopleSoft's business."

Maybe so. But is that argument more persuasive than the impressive numbers PeopleSoft is likely to post?

The company said it would beat guidance for the June quarter, with GAAP earnings per share of 10 cents to 11 cents on revenue that would range between $490 million and $500 million. Previous guidance had been for earnings of 8 cents to 9 cents a share. The company also said software license revenue, a key metric, would range between $105 million and $115 million, compared with its previous guidance of $85 million to $95 million.

At the very least, the strong results could well force Oracle CEO Larry Ellison, who already raised his bid from $16 to $19.50 a share, to raise it again. How high it might go is unclear, but analysts have talked about the bid being sweetened by anywhere from 50 cents to $5.50 a share. Asked last month if he might bid more, Ellison said, "Never say never," and no one at Oracle said anything different on Wednesday.