Oracle Ups Bid for PeopleSoft

The takeover battle heats up as the software giant raises its all-cash offer to $26 a share.
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Updated from 10:32 a.m. EST

Oracle

(ORCL) - Get Report

stunned investors Wednesday by raising the price of its all-cash offer for

PeopleSoft

(PSFT)

to $26 per share, valuing the target at about $9.4 billion.

In a press release, PeopleSoft advised its shareholders to take no action at this time. PeopleSoft spokesman Steve Swasey said in a prepared statement that the company's board of directors will meet "in due course" to review and discuss Oracle's revised offer and make its recommendation to PeopleSoft stockholders. It is company policy not to disclose when the board meets, Swasey said.

Oracle said its new offer represents an 18.8% premium over PeopleSoft's closing price of $21.89 on Feb. 3, 2004.

In recent trading, Oracle shares were down 38 cents, or 2.7%, to $13.53 while PeopleSoft stock was up $1.04, or 4.8%, to $22.93.

(

TheStreet.com

yesterday examined

the $25 million golden parachute for PeopleSoft CEO Craig Conway in the event his company were acquired.)

Oracle, the world's second-largest software vendor, said it expects a decision "regarding antitrust approval from the Department of Justice prior to March 12, 2004," and the new offer expires at midnight EST Friday, March 12. The latest move seems to indicate Oracle's confidence it will receive a green light from regulators.

But the reaction on Wall Street could mean there's still skepticism about Oracle's ability to win DOJ approval. "If

investors thought we were going to get DOJ approval, the stock would be a couple bucks higher than this," said Rich Parower, co-manager of Seligman Global Technology Fund. "Still, at $26, the Street is definitely taking Oracle more seriously," he added. (His fund holds shares of PeopleSoft).

Oracle's previous offer price was $19.50 a share. Its original offer in June was $16 a share.

"This is our final price," said Jeff Henley, Oracle's chairman and CFO.

FTN Midwest Research analyst Trip Chowdhry said he believes Oracle won't raise its offer from $26, a bid price he predicted last July.

"The price is right. The proposition for customers is right," said Chowdhry, who believes customers in this postrecession era want to buy databases and applications from a single software vendor. "If this deal doesn't go through, PeopleSoft falls to $13 because the future belongs to vertically integrated solutions." (Chowdhry has buy ratings on PeopleSoft and Oracle and his firm hasn't done banking with either company.)

Pacific Crest Securities analyst Brendan Barnicle also suggested the new price is much more realistic. "Even at $26, it's a value relative to its peers but it really closes a lot of the gap of where its valuation has been," said Barnicle, who said the new bid is 29 times his 2004 earnings estimate. "It's something people are going to have to think very seriously about."

"It breathes new life into

the bid," added Barnicle, who has buy ratings on both PeopleSoft and Oracle. (His firm hasn't done banking with either company.)

Rob Tholemeier, an analyst with DRW Research in New York, called Oracle's price hike a "brilliant move."

"Shareholders should feel a lot of pressure to take the offer," he wrote in a note Wednesday. Tholemeier is among a group of analysts who have been critical of PeopleSoft's financial results since its acquisition of

J.D. Edwards

, pointing out that revenue continues to decline when the combined company is compared with the separate results of both companies a year ago. He does not hold shares of either company.

Other analysts, as well as Oracle, also have noted that PeopleSoft moved up the date of its annual meeting so that it takes place before its first-quarter results come out. That was after PeopleSoft lowered guidance for that quarter. Oracle has proposed a slate of five candidates for the PeopleSoft board as well as a proposal to increase the size of the board from eight to nine. Four directors are up for reelection.

Thursday is the final day to purchase shares on the open market and vote those shares at the PeopleSoft shareholders meeting March 25.

PeopleSoft's Conway and the company's board have steadfastly rejected Oracle's overtures.