With two well-timed moves, Oracle ( ORCL) CEO Larry Ellison has taken the wind out of PeopleSoft's ( PSFT) sails and proved that his attempt to buy the rival software maker is deadly serious. "The pundits who said Ellison was simply out to disrupt PeopleSoft's business were wrong," said Ken Marlin, head of Marlin and Associates, a mergers and acquisitions firm. "M&A strategy is all about putting the ball in the other guy's court and he's done that." Maybe so. But a surprise announcement on Wednesday that the state of Connecticut will file a lawsuit to block the hostile takeover complicates the bitter battle even more. Early Wednesday afternoon, the PeopleSoft board said it would meet again to consider Oracle's new offer. Oracle announced Wednesday morning that it has increased its hostile takeover offer of PeopleSoft to $19.50 a share, in an all-cash deal valuing the company at $6.3 billion. Ellison raised the offer from $16 a share after a series of meetings with major PeopleSoft shareholders. "Many of those shareholders indicated the prices at which they would tender their shares. Therefore, Oracle is raising its all-cash offer to $19.50 per share. Oracle remains committed to acquiring PeopleSoft and will not be deterred by management's maneuvers to maintain control of a company they do not own," he said. The increased offer and the state lawsuit are the latest salvos in a fast and furious volley since Oracle first launched a $5.1 billion hostile takeover bid on June 6. PeopleSoft filed suit against the database maker, saying the takeover offer was a sham mainly meant to disrupt PeopleSoft's business and its own acquisition of J.D. Edwards ( JDEC) Oracle also announced on Wednesday that it was filing a countersuit in Delaware against PeopleSoft, its board and J.D. Edwards "in response to their collective efforts to eliminate PeopleSoft shareholders' ability to accept Oracle's tender offer." Oracle said PeopleSoft is failing to act in the interest of its shareholders in aiming to block the Oracle bid.
Together, Oracle's moves put enormous pressure on PeopleSoft's management to consider the offer, something they've said they would not do. First, and most significantly, the new offer represents a 29% premium over PeopleSoft's closing price of $15.11 on June 5 and a 7% premium to the current price. "We believe this reflects a historical premium for software acquisitions often done at 20% to 30% over market-share value," said Robert Breza, who follows software for A.G. Edwards. And the threatened lawsuit by Oracle could serve to separate PeopleSoft's management from the board of directors. "If the deal falls through, I could see PeopleSoft stock dropping not just back to $16, but as low as $14," said Marlin. "That's a billion dollars in shareholder equity gone. If you're on the board you'd have to expect very angry shareholders and lawsuits at that point," he said. Indeed, the board might have to act without the approval of PeopleSoft CEO Craig Conway, who once described Oracle as "sociopathic." Conway dismissed the original offer almost as soon as it was made, saying it was "atrociously bad behavior from a company known for atrociously bad behavior." And last week he said that regulatory issues would make an Oracle-PeopleSoft linkup impossible "at any price." Although some analysts said the antitrust talk was mostly hot air, on Wednesday, the state of Connecticut, a major PeopleSoft customer, said it would file an antitrust lawsuit Oracle to block the takeover. A takeover, state officials said, would create an "enormous and expensive upheaval" of the state's ongoing conversion of its computer system, known as Core-CT. The $100 million conversion is based on software purchased from PeopleSoft under a five-year contract signed in 2002. "In filing this lawsuit today, Connecticut is taking the necessary steps to protect our taxpayers. Oracle's hostile takeover bid has the potential to cost the state millions of dollars and is a threat to the progress we have made in recent years in technology improvements" said Gov. John G. Rowland.
In a prepared statement, Connecticut Attorney General Richard Blumenthal talked about Oracle, the way people used to talk about Microsoft. "We are assembling a powerful coalition of states and other consumers that will suffer the same unacceptable costs if this unlawful, anticompetitive takeover is permitted. The takeover would cripple competition, threatening higher prices and lower quality, and cause terrible waste in the human and financial investments already made," said Blumenthal. "Oracle is threatening to force its products on consumers by illegally seizing a key rival and thus amassing market dominance." Oracle announced the sweetened offer before the opening bell and PeopleSoft quickly spiked, rising as much as 8.5% amidst very heavy volume. However, trading slowed dramatically within two hours, and the stock gave up much of its gains, closing at $17.93, an increase of 4.5% Oracle ended the day up 7 cents, or less than 1%, to $13.42 a share.