07/20 - PeopleSoft deal another blow to Oracle - East Valley Tribune: Business

07/20 - PeopleSoft deal another blow to Oracle

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Posted: Sunday, July 20, 2003 8:16 am | Updated: 2:16 pm, Thu Oct 6, 2011.

SAN FRANCISCO - Business software maker PeopleSoft Inc. took control of J.D. Edwards & Co. on Friday, adding to a recent barrage of blows delivered to Oracle Corp.'s hostile takeover bid.

If corporate battles were scored like boxing matches, Pleasanton-based PeopleSoft clearly would be ahead on points at this stage of its high-stakes scuffle with Oracle, according to industry analysts.

"PeopleSoft has really risen to the occasion," said analyst Eric Upin of Wells Fargo Securities. "They have rallied the troops and handled everything very well."

"This is huge for us; we're all walking on thin air," PeopleSoft CEO Craig Conway said in an interview Friday.

Redwood Shores-based Oracle remains determined to buy PeopleSoft, even though that objective will now require taking on something that it didn't originally want - Denver-based J.D. Edwards.

"We believe time is on our side," Oracle spokesman Jim Finn said.

Oracle has extended its $19.50-per-share offer through Aug. 15. As of July 11, about 14 percent of PeopleSoft's stock had been tendered to Oracle.

If it hopes to prevail, Oracle has to hope things go better than they have in the past three weeks.

First, the U.S. Department of Justice raised doubts about Oracle's takeover hopes by demanding more information about how a PeopleSoft combination would affect competition in the $20 billion market for business applications software.

Then, PeopleSoft surprised just about everybody by overcoming the customer uncertainties caused by Oracle's bid to make enough sales to exceed Wall Street's profit expectations.

During the past week, PeopleSoft won antitrust approval of its J.D. Edwards bid, clearing the way for it to take control Friday.

The owners of 88 percent of J.D. Edwards' outstanding shares have accepted PeopleSoft's $14.74-per-share offer. PeopleSoft said Friday that it expects to acquire the remaining shares by the end of August.

J.D. Edwards' shares gained 5 cents to close at $14.75 Friday on the Nasdaq Stock Market, where PeopleSoft's shares rose 10 cents to close at $18.10 and Oracle's shares dipped a penny to close at $12.08.

The recent chain of events has given Conway the upper hand in a prickly tussle with his former boss, Oracle Chairman Larry Ellison.

Conway, who left Oracle a decade ago, has tartly portrayed his former employer as a wheezing bully trying to squash a more nimble underdog.

"At some point, even the oddsmakers have to conclude this is a very strong horse," Conway said of PeopleSoft during a conference call with analysts Thursday.

PeopleSoft can't afford to savor its success so far, because it has to deliver the promised benefits of its J.D. Edwards merger while the opportunistic Oracle waits for a misstep.

"PeopleSoft is really going to be on the hot seat for the next couple quarters," said analyst David Hilal of Friedman, Billings, Ramsey & Co. "If they mess up, Oracle is going to be all over them."

In Friday's interview, Conway pledged to devote "100 percent of my time and mind share" to a smooth merger transition for the 13,000 employees and 11,000 customers affected by the deal. "This is pretty much a new company," Conway said.

Given the checkered history of corporate mergers, PeopleSoft seems likely to encounter a few bumps, Upin predicted. "All acquisitions are tough," Upin said. "No matter how well prepared you might think you are, there are always some surprises and skeletons that pop out."

PeopleSoft might be particularly vulnerable because the Oracle bid prompted management to accelerate the timetable for buying J.D. Edwards. The two sides originally planned to wait until the fall to close the deal.

By moving up the timetable, PeopleSoft complicates life for Oracle. Because PeopleSoft is issuing 52.6 million additional shares to buy J.D. Edwards, Oracle would have to spend $7.3 billion to buy the combined company instead of $6.3 billion for PeopleSoft by itself if the $19.50 per share price stands.

The J.D. Edwards takeover also makes it more difficult for Oracle to wrest control of PeopleSoft's board if Ellison decides to wage a proxy battle next year.

Four PeopleSoft directors come up for election next year, but even if Ellison could replace them all, it wouldn't be enough to gain a majority because PeopleSoft added an eighth member Friday. PeopleSoft imported a J.D. Edwards director - Michael Maples, a former executive for longtime Oracle rival Microsoft.

If the J.D. Edwards deal works out as well as PeopleSoft envisions, Oracle will probably have to increase its bid above $20 per share, analysts said.

FBN Midwest Research analyst Trip Chowdhry estimates Oracle can afford to bid as high as $26 per share for PeopleSoft without undercutting its earnings. Chowdhry believes Oracle will up the ante because the last few weeks have demonstrated "Oracle needs PeopleSoft a lot more than PeopleSoft needs Oracle."

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