Oracle Sees Its PeopleSoft Options Narrow - TheStreet

Oracle Sees Its PeopleSoft Options Narrow

Larry Ellison's company can either broaden its bid to buy J.D. Edwards or rely on the courts to make its case.
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Larry Ellison is down -- but he's not out yet.

With the Department of Justice now out of the picture,


(ORCL) - Get Report

CEO still has two potentially powerful cards left to play in the campaign to buy rival software maker



: throw another $1 billion or so into the pot, or seek emergency relief from a Delaware Court.

Nevertheless, Monday's decision by the feds not to delay PeopleSoft's friendly acquisition of

J.D. Edwards


by asking for more information, is a significant setback for Oracle.

Had the government delayed the $1.75 billion JDEC acquisition, as it delayed Oracle's $6.3 billion offer for PeopleSoft, Oracle would have had more time to make its case to PeopleSoft shareholders, many of whom have been reluctant to sell their interest in the company for $19.50 a share.

Instead, Ellison, who has never publicly stated what he would do if the J.D. Edwards merger was completed, has to scramble. A PeopleSoft spokesman said he expects his company to announce that the tentative deal will become final as early as Friday.

Oracle didn't comment directly on the DOJ announcement Monday, but Oracle's Jim Finn did say: "We are extending our offer for PeopleSoft and we remain fully committed to acquiring PeopleSoft, with or without J.D. Edwards." The tender offer will now expire at midnight EDT on Friday, Aug. 15, 2003, Finn said.

Meanwhile, Oracle will continue to meet with PeopleSoft shareholders and is likely to tell them that they have nothing to gain by sticking with CEO Craig Conway, who has vociferously opposed the takeover from the beginning.

"At this point shareholders can't count on getting more money out of the acquisition -- but they can certainly lose," said Ken Marlin, managing partner of investment bank Marlin & Associates. "

Even though the combined companies are obviously worth more than PeopleSoft alone, a richer offer might not translate into a higher payment per share, said Marlin. With PeopleSoft diluting its stock to buy J.D. Edwards, the purchase price will have to be spread over a much larger number of shares. And if the deal falls through, PeopleSoft's stock could drop below $15, he said. On the other hand, Oracle could go as high as $21 or $22 a share, he said.

In any case, Oracle can certainly afford to up the total offer, said Piper Jaffray analyst Tad Piper. Piper estimates that the cost of the combined companies would ultimately net out to about $5.8 billion after the cash on hand of the acquired companies is taken into account.

Should Oracle succeed in buying the combined company, it would then be possible to spin out the J.D. Edwards assets, a move that would raise cash and simplify the job of integrating the merged companies, Piper said.

Oracle, which filed suit to stop PeopleSoft from buying J.D. Edwards, could return to court in Delaware and ask for a temporary restraining order to stop the clock. Oracle would have to show that it will suffer damage that can't be reversed later if the deal is allowed to go through, said Ron Geffen, a former SEC enforcement officer now with the law firm of Sadis & Goldberg in New York. Geffen indicated that the argument is plausible, but whether a judge would actually grant such relief is unclear.

Attorney William Dodds, a New York based securities lawyer with the firm of Dechert LLP, agrees that the case for an immediate order is plausible, but said convincing a judge would be very difficult. "Oracle has sat on its hands for weeks. At this point, the burden of proof would be extraordinarily high."

Right now though, the next scheduled action in court is a conference on discovery at the end of the month. No substantive hearings have been scheduled and a answer by the DOJ on the propriety of Oracle's PeopleSoft acquisition is still several months away.

If all else fails, and Ellison still wants to pursue PeopleSoft, he could wait until PeopleSoft's next shareholder meeting in the spring of 2004 and make his case there.