After 16 months of bloody warfare, PeopleSoft has finally voiced a willingness to sit down and discuss a deal with Oracle—a development that marks the beginning of the end for the company, according to some legal experts.
PeopleSoft Inc. board member Steven Goldby, on the stand for the second day in a Delaware court trial, testified Tuesday that PeopleSoft would negotiate the deal "if the price was right" and if there were a high degree of certainty that the deal would wrap up quickly, according to The Associated Press.
The admission confirms what some industry watchers had predicted when PeopleSoft fired CEO Craig Conway on Friday: namely, that the company's board was getting rid of him in order to clear the way to negotiations.
Read more here about the board's decision to oust Conway.
"We think it significantly increases the probability that Oracle will be successful," Ken Marlin, a managing partner at Marlin & Associates New York LLC, a New York mergers and acquisitions law firm focused on media and technology, said at the time.
"The most important thing is Conway is not there. … Craig Conway convinced his board of directors of two things: one, that Oracle was the evil empire, and, more importantly from a board perspective, he convinced them the price being offered by Oracle was inadequate."
As he fought off Oracle Corp.'s hostile takeover bid, Conway was quoted as saying that there was no price Oracle could offer that PeopleSoft would consider. Such an outrageous statement is unacceptable, since there is always a price for which a company must be sold to satisfy fiduciary obligations—one reason why Conway got into trouble, experts said. Seen in that light, Goldby's statement in court could be seen as evidence of PeopleSoft's board trying to stay out of trouble.
It also could mean that PeopleSoft is, in fact, ready to negotiate. "We think we've seen the beginning of the end of PeopleSoft," Marlin said.
While PeopleSoft participates in a court trial in which it's defending its anti-takeover programs—the poison pill and the Customer Assurance plan—its willingness to negotiate may seem contradictory. But the fact of the matter is that PeopleSoft has little choice, since the protective programs are one of its last remaining bargaining chips.
"From a PeopleSoft standpoint, they're taking the only tact they can take, given the fact they have the poison pill and customer protection plan in place," Marlin said. "To say to Oracle, 'All these provisions are legal, and we'll fight to keep them here.' On the other hand, 'If you offer us enough money, we'll drop it all.' The question is whether these things are legal. They could be—PeopleSoft could say, 'It doesn't mean we can't withdraw them, but they're legal.'"
Next Page: Dealing with the poison pill and the Customer Assurance plan.
Tom Burnett, president of Merger Insight, an affiliate of the New York research and brokerage firm Wall Street Access, said his firm was encouraged by PeopleSoft's new willingness to negotiate.
All that's left between Oracle and the finish line is for the Redwood Shores, Calif., database giant to get the European Union's go-ahead on the merger and to improve its negotiating leverage by moving the poison pill and Customer Assurance plan out of the way.
"They have to wrestle with that," Burnett said. "That's willingly entered into by PeopleSoft and its customers. I doubt a judge will be willing to just rip that up."
The Customer Assurance plan and the poison pill are both programs that guarantee customers a generous refund—for two to five times the money they spent on PeopleSoft products—if Oracle were to fail to support PeopleSoft products after buying the company. Oracle has brought PeopleSoft to court in Delaware in an attempt to strike down the plans, which are estimated to carry about $2 billion in potential liability for Oracle.
Can PeopleSoft's middleware-integration deal with IBM help stall an Oracle takeover? Click here for analysts' insight.
William Lawlor, a partner in the Philadelphia law firm of Dechert LLP who leads the firm's mergers and acquisitions group, said that—based on case law and the fact that Oracle could run a proxy battle and force redemption of the bill—it's a good bet that the Delaware court won't force a redemption of the poison pill.
The Customer Assurance plan is another matter entirely, Lawlor said, since it's a novel provision that could well stand in the way of a takeover.
"While there might have been some customer concern that Oracle will pull licenses and upkeep away, PeopleSoft might have been encouraging that concern, and given the numbers at play here, this would really get in the way of a tender offer," he said. "If I had to bet on it, the court is really going to look hard at that one. I'd be surprised if that stays up."
In the meantime, some are saying PeopleSoft is stuck between a rock and a hard place. Its situation hasn't been made easier by the fact that several investment banks, including Marlin & Associates and Morgan Stanley, have said PeopleSoft should trade between $13 and $16 per share in the absence of a hostile takeover. Oracle is offering $21 per share—a tantalizing bonus.
"Whichever set of numbers you look at, it would be less than what PeopleSoft is now trading at," Marlin said. "It puts pressure on the board, and on management."
Given that, there's no need for Oracle to raise its offering price for Pleasanton, Calif.-based PeopleSoft, Marlin said. "For the sake of getting a deal and removing the poison pill and the customer rebate program, perhaps they'll be willing to raise it a little, but we would not suspect a significant [increase]."
On the other hand, if PeopleSoft does not sit down and cooperate soon, as Goldby suggested the company was prepared to do, Oracle could well lower its offering price, Marlin said—as it has done in the past.
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