Updated from 1:01 p.m. EST
Regulatory victories in hand,
raised its takeover offer for business-software rival
Monday to $24 a share from $21.
Industry observers were divided on whether the raised bid will force an end to the takeover saga. PeopleSoft sounded initially skeptical of the offer, though its board has yet to render a final verdict.
With the outcome uncertain, at least one analyst advised investors to sell PeopleSoft shares into today's strength. CIBC's Brad Reback, who expects PeopleSoft to give a thumbs-down to the offer, said the acquisition may not be decided until next year. "We would take this opportunity to take profits in PeopleSoft," he wrote in a morning note.
PeopleSoft shares rose $2.27, or 10.5%, to $22.94 Monday. Oracle was up 13 cents, or 1%, to $12.79.
Oracle, whose hostile overtures for PeopleSoft have dragged on for 17 months, called the offer its "best and final," and said if a majority of shares aren't tendered by Nov. 19, it will walk away. Oracle also demanded the elimination of PeopleSoft's "poison pill" shareholder rights plan and a contingent refund guarantee to PeopleSoft customers that is widely viewed as a mechanism to deter the buyout.
"Our best and final offer is $24 per share, which we believe represents a substantial premium to the price at which those shares would trade were it not for Oracle's offer," Oracle said in a statement.
The move comes as a surprise, since only a few weeks ago Oracle CEO Larry Ellison suggested in court that he was leaning toward
lowering the asking price for PeopleSoft. "There have been more
internal discussions about lowering the price than raising the price," Ellison said, as he testified in an Oracle-led suit seeking to strip away PeopleSoft's anti-takeover measure.
While the new offer raises the value of Oracle's all-cash bid by more than $1 billion to about $9.2 billion, it remains below the $26 a share Oracle was offering as recently as May 2004.
PeopleSoft advised shareholders to take no action, saying it would review the bid and make a recommendation in due course. The company noted its board had previously rejected the $26-a-share offer as too low.
On Wall Street, analysts and investors were split over the implications of the raised bid.
"Will it make
the acquisition more likely? Yes," said Tony Ursillo, an analyst at Loomis Sayles. "PeopleSoft is running out of roadblocks." His firm owns Oracle, though it doesn't have shares in PeopleSoft.
Ursillo said he began to think a deal was "more likely than not" during the U.S. antitrust proceedings, in which Oracle ultimately prevailed. Further complicating PeopleSoft's case for staying independent, its financial results have recently been "mixed," noted Ursillo. "So that leg of the stool is a little more wobbly as well."
He said the latest bid looked "fair," noting, "It's as high as the stock's been at any time in the past two years." Indeed, over the past two years PeopleSoft's stock price peaked at $23.94 on Jan. 6, 2004.
"This definitely increases the likelihood of an acquisition," said Steve Roth, an analyst for the John Hancock Technology fund. "Now the question is whether the board will let go of its baby."
John Hancock has a holding in Oracle but isn't invested in PeopleSoft. Roth said he wasn't thrilled that Oracle will be paying more than it had previously offered, but added, "If it helps get this resolved sooner rather than later, I'm for it."
But Trip Chowdhry of FTN Midwest Research disagreed, saying the new offer only shows that "Oracle seems to be quite desperate."
Chowdhry, who expects PeopleSoft to reject the deal, thinks Oracle would need to offer upwards of $30 a share for PeopleSoft to become more receptive -- a price Oracle likely couldn't afford. "Oracle has been pigeonholed. They can't raise their price enough to get the PeopleSoft board interested," said Chowdhry.
Oracle's offer looked dead for most of 2004 after running into Justice Department antitrust opposition, but that roadblock was eliminated by a federal court on Sept. 9. Last week, European regulators dropped their own opposition to the bid, saying a combined Oracle-PeopleSoft probably wouldn't dominate the market for high-end business software.
PeopleSoft's ability to resist its suitor was also hobbled by poor financial performance, culminating in the Oct. 1 firing of CEO Craig Conway. Speculation grew that Conway's successor, Dave Duffield, was more amenable to negotiations, although Wall Street was divided over whether Oracle was more likely to raise or lower its $21-a-share offer.
That uncertainty was swept away Monday morning.
"The time has come to bring this matter to a conclusion by allowing the stockholders to decide," Oracle said in a letter to PeopleSoft's board, reprinted in Monday's announcement. "For almost 17 months the owners of PeopleSoft -- the stockholders -- have been denied the opportunity to consider our offer, while we have fought our way through a variety of regulatory obstacles actively promoted by the PeopleSoft board. Those obstacles no longer exist."
Oracle called the $24-a-share price non-negotiable, although it did say it would discuss "other terms of a merger agreement," and voiced a commitment to support existing PeopleSoft customers and products, including a next-generation flagship, PeopleSoft 9.
Oracle said that in the event the tender offer is accepted without the elimination of the poison pill or refund guarantee, "then we will look to the Delaware Chancery Court to take appropriate action."
For its part, PeopleSoft also pointed to the courts, noting that its $1 billion business-interference lawsuit against Oracle is scheduled to go to trial in Oakland, Calif., on Jan. 10.
The company also repeated its forecast for sequential growth in license revenue and overall earnings per share in the fourth quarter. "The company continues to demonstrate strong sales execution and enters the fourth quarter with a robust pipeline," PeopleSoft said.
Meanwhile, on a conference call, Oracle said that if the acquisition goes through, PeopleSoft's business would likely start contributing to its own earnings by the end of the first year, excluding special charges. The acquisition would boost Oracle's net income according to generally accepted accounting principles by the end of the second year.
Prudential estimated that the acquisition would add between EPS of six to 10 cents to its calendar year 2005 earnings estimate for Oracle of 59 cents.
One potential side-effect of today's offer: software stocks in general could get a boost on more takeover speculation, suggested CIBC's Reback in a note. Given PeopleSoft's cool reception to the bid, Oracle may start exploring new acquisitions, he said, with likely candidates including
"Oracle's management team has stated on several occasions, in no uncertain terms, that the company will complete a large acquisition, be it PeopleSoft or someone else," he wrote.