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.
raising his offer to $19.50 a share from $16 and offering to give PeopleSoft customers more support than he originally promised, Ellison has proven that he really wants to buy the company, not just disrupt PeopleSoft's business. PeopleSoft CEO Craig Conway, meanwhile, is doing more than relying on his internal defenses. He has sped up the friendly, $1.75 billion J.D. Edwards ( JDEC) acquisition, which if completed in time will make PeopleSoft much more expensive, and less desirable. On Friday, PeopleSoft's board played yet another card, saying that it was willing to talk to a so-called white knight, that is, a company willing to buy or merge on a friendly basis. But it's a weak ploy. Simply put, it's hard to imagine anyone else buying PeopleSoft. IBM ( IBM) certainly could afford to, but the company has repeatedly said that it's not interested in competing with its enterprise application partners. Hewlett-Packard ( HPQ) has barely digested Compaq, and SAP ( SAP), the giant German application vendor, said no last week. "We have a strategy within SAP that we don't buy market share," CEO Henning Kagermann told reporters covering the company's annual customer convention. Cash-rich Microsoft ( MSFT) could also pay the freight, but would probably be buying another antitrust case if it picked up PeopleSoft, even though Microsoft might be tempted to replace its current weak CRM offerings with PeopleSoft's much stronger applications. Bottom line: an unlikely outcome. And then there are those who think all three players in the merger dance would do better to tend to their knitting rather than waste time, money and executive attention spans on M&A games. "The funny thing about all of this is that it is a battle over a snowball in hell. The enterprise applications sector is saturated and there appears to be a lot more shelfware than we thought," said Rob Tholemeier, software analyst for research boutique Ramberg, Whalen. Nevertheless, Tholemeier said PeopleSoft shareholders should consider the deal. "I don't see PeopleSoft shareholders better off if the deal collapses -- although Conway would be." Without the offer, PeopleSoft could be headed back to $14 a share, he said. Maybe so. But right now it looks like lawyers will have more to say than shareholders.