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PeopleSoft Accuses Oracle of Stalling Antitrust Probe

The company claims Oracle is using a delay tactic to promote uncertainty around PeopleSoft.

As a Delaware judge declined Wednesday to speed up a hearing in the hostile-takeover fight between





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, PeopleSoft CEO Craig Conway on Wednesday charged its rival with stalling a parallel antitrust investigation.

"They don't want a decision out of the Justice Department anymore," Conway said of Oracle, whose $7.3 billion bid for PeopleSoft is undergoing antitrust review by the Department of Justice.

In an interview with

that also touched on PeopleSoft's accounting practices and guidance, Conway charged that the Justice Department faces a 10-day deadline to make an antitrust ruling on the proposed acquisition after Oracle submits information, but that Oracle is stalling on doing that.

"They're in control of the process," Conway said of Oracle. "I think they're using delay as a tactic now to continue to promote the uncertainty around PeopleSoft."

Justice Department spokeswoman Gina Talamona said the investigation was ongoing and would not provide details about a time table. Oracle has pushed out the expected date of a decision on several occasions. The latest word was that the review may not be complete until January.

"We are working closely with the DOJ and the EC

European Commission, who are undergoing a thorough review of our intended acquisition," Oracle spokesman Jim Finn said in a statement. "The length of these reviews is driven by the size of the transaction, as well as the complexity of the deal and of our industry."

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Meanwhile, a judge in Chancery Court in Delaware on Wednesday denied a request by both Oracle and PeopleSoft to speed up a hearing date on a controversial money-back guarantee program launched by PeopleSoft to fight Oracle's bid, according to wire reports.

Oracle has said that refund program, which promises PeopleSoft customers refunds in the event of an acquisition, could derail its $19.50-a-share bid on Oracle, and a group of shareholders have sued PeopleSoft over the guarantees, which it called a "nonredeemable poison pill."

A Wall Street analyst on Wednesday joined the growing chorus of critics of the refund program. JMP Securities analyst Pat Walravens said the refunds represent cash that could otherwise be paid to the stockholders in the form of a higher acquisition price. He estimated the total potential liability of the various guarantee programs to be about $1.35 billion, or $3.79 a share, by the end of the fourth quarter.

Walravens suggested that some new triggers of the refund policy included in the third quarter were overly broad and would trigger payments even if an acquiring company continued supporting PeopleSoft products.

Walravens, who has a market perform rating on PeopleSoft, wrote in a note Wednesday that he cannot recommend the stock because of both the refund program and the opacity of accounting used in connection with PeopleSoft's acquisition of J.D. Edwards.

In particular, Walravens and other analysts have questioned PeopleSoft's decision to exclude capitalized software costs and include deferred maintenance revenue from J.D. Edwards to arrive at its pro forma numbers, which both run counter to GAAP requirements and common practice. (Walravens' firm hasn't done any banking with PeopleSoft and he doesn't own any PeopleSoft shares.)

However, PeopleSoft has changed some provisions of its refund program in response to concerns raised by Oracle, Conway noted in the interview. Although he said he considers the Oracle saga over, Conway argued that the refund program is needed to protect shareholder value.

"Without that customer insurance plan, the uncertainty that Oracle has promoted would have a material impact on our financial results," Conway said. "The

refund plan allows customers to move forward comfortably and confidently in their investment in PeopleSoft technology."

Conway said customer reception is as good as it's ever been and he hasn't heard from any investors saying they have a problem with the company's financial results. He pointed to the movement in PeopleSoft stock compared to Oracle as evidence that his company's strategy is working and his rival's is not. Shares of PeopleSoft have climbed 36% since the beginning of June, while shares of Oracle are down 3% and the


is up 19%.

Indeed, Pacific Growth Equities analyst Patrick Mason pointed out in a note Thursday that investors don't appear to care as much as he did about PeopleSoft's use of pro forma accounting to reach its financial targets.

Mason said he doesn't agree with People's inclusion of J.D. Edwards maintenance revenue in its results. But he still upgraded the stock to overweight from underweight for several reasons, including stronger IT spending expected next year and opportunities for cross-selling to J.D. Edwards customers.

Mason also cited valuation for his upgrade, noting PeopleSoft is trading at about 23 times 2004 earnings vs. a price-to-earnings ratio of 24 for Oracle and an average P-E ratio of 33 for 13 software makers. (His firm hasn't done any banking with PeopleSoft.)