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Kevin Reschenberg
has over 20 years of experience in IT and holds an MS in
computer science. A former senior consultant and
process specialist with PeopleSoft Inc., he now works
with PeopleSoft customers as owner of Orange County,
California-based SparkPath Technologies, Inc. |
Oracle
vs. PeopleSoft
Last
week's court decision rejecting the DOJ's antitrust
claims and clearing the way for Oracle to proceed with
its takeover of PeopleSoft probably wasn't a big
surprise to anyone, but it certainly is disappointing.
It's been 15 months (can you believe it?) since this
started. At first, many of us didn't believe the offer
was genuine. We assumed that Oracle was just trying to
disrupt PeopleSoft's friendly takeover of J.D. Edwards
(which didn't happen), or to disrupt PeopleSoft's
business in general (which did). But if that was true at
the time, it appears that at some point Oracle decided
it really wanted to buy PeopleSoft and take out a
competitor that Larry Ellison once claimed he saw only
in newspaper ads.
There are still some hurdles for Oracle to clear, but
this case was probably the biggest one. The DOJ could
appeal the decision within the next 60 days. The
European Union could reject the merger. I'll assume that
neither of those will happen, or that even if an appeal
is filed, the outcome will be the same.
Other cases are pending. PeopleSoft sued Oracle for $1
billion over its unfair business practices. That case
goes to trial on November 1. Even if PeopleSoft wins
this one and collects the money, Oracle could get
control of the checkbook later anyway. $1 billion in
extra cash might cause a blip in the stock price,
forcing Oracle to raise its offer by a corresponding
amount, but this all seems a little far-fetched to me.
Oracle has sued to overturn PeopleSoft's poison pill
defense. This is a provision that allows PeopleSoft to
create additional shares during a hostile takeover,
instantly making the company far more expensive. That
case is set to go to trial on September 23. This poison
pill appears to be a strong defense, but it could
crumble if the PeopleSoft board is under pressure to
negotiate with Oracle.
There is actually another type of poison pill. This is
PeopleSoft's very clever "Customer Assurance Plan",
which promises two or more times a customer's money back
if a takeover happens and support for the product is
dropped within a specified timeframe. This deal was
offered to new customers and was later amended to
specify Oracle only (possibly to attract a white
knight?). It has now created liabilities of $1 billion
or more. Oracle's reaction to this plan has been
interesting. While the company claims that it will
support the product for 10 years, it's whining about
having to pay out refunds under this plan, which is
triggered only if support is dropped. Oracle also
complains that the board is not fulfilling its duty to
act in the best interests of the shareholders. Well, I
think that this plan is great for the shareholders if it
brings in new business, which it seemed to do very well.
PeopleSoft could reinstitute this program at any time,
and I hope that it does.
If Oracle can't get the board to drop its poison pills,
it could launch a proxy fight to elect directors to the
board. But once again, there is an obstacle. Even if
Oracle could get enough proxies, PeopleSoft's directors
serve on staggered terms--so Oracle could not take
control in just one election.
Finally, Oracle needs to get the shareholders on board.
Only about 10% of the outstanding shares have been
tendered so far, and it's been a year of offers, changes
in the offer price, and extensions.
Even with all of these obstacles, I'm very worried.
Oracle could just go on spreading FUD in order to drive
down the stock price. Everybody has a price, and the
large institutions (including mutual funds) that hold
large blocks of PeopleSoft shares don't necessarily care
that Oracle wants to remove competition, shut down an
excellent product line and fire lots of people. If that
happens, I hope that Oracle is forced to pay a very
large price.
Until next time...
 Email: kevin@sparkpath.com |
