PeopleSoft’s Conway now says Oracle saga not over

At the end of a strong quarter six months ago, PeopleSoft Inc. chief executive officer Craig Conway told analysts that Oracle Corp.’s bid for his company was effectively dead and having no impact on sales. Thursday, at the end of a weaker quarter, Conway revised his message and blamed Oracle’s lingering takeover campaign for lost and delayed sales.

When Oracle finally backs off, “some amount of deals that have been held or deferred will be released,” Conway said in a conference call following PeopleSoft’s announcement of its first-quarter financial results. “There will be a release of the dam.”

That prediction reverses Conway’s statements on PeopleSoft’s earnings call in October.

“If customers felt that the Oracle approach was going to go away…I happen to feel that it wouldn’t be a factor either way. I don’t think we’d get an acceleration and I don’t think we’d get a deceleration,” Conway said at the time. “I think as Q3 has gone on, most customers have felt that the saga is over.”

PeopleSoft’s first-quarter revenue of US$643.1 million fell slightly short of analyst expectations, marking the first time the company has missed estimates since Oracle launched its takeover bid last June. Several large deals closed just after the quarter ended, and PeopleSoft expects business to pick up in coming quarters, Conway said in Thursday’s conference call.

He also pointed a finger at Oracle. Asked by an analyst how many customers are delaying buying decisions until the takeover tussle is resolved, Conway declined to provide an estimate.

“It’s a moving target, but it’s always a positive number,” he said. “The list continues to grow, but some of those deals can’t wait. They close for our competitors.”

SAP AG on Thursday reported a 45 per cent increase in its U.S. business in the first quarter. Conway cited SAP as PeopleSoft’s primary rival and said that while SAP gobbled up U.S. deals, PeopleSoft had a particularly strong quarter in Europe, the Middle East and Africa.

“Somebody is losing market share, and I believe the answer is Oracle,” he said.

Still, Oracle’s bid continues to suck up PeopleSoft’s resources. Though analysts say Oracle has little chance of acquiring PeopleSoft, thanks in large part to an antitakeover provision in PeopleSoft’s bylaws known as a “poison pill,” Oracle has persisted in its US$9.4 billion cash offer to PeopleSoft’s shareholders for control of the company.

Chief financial officer Kevin Parker said PeopleSoft has spent US$55 million to date fending off Oracle’s advances and will spend another US$10 million to US$12 million next quarter. Next quarter, PeopleSoft for the first time will exclude the costs of its battle with Oracle from the “pro forma” calculations on which it asks analysts to base their assessments of the company’s finances.

“We’ve gotten to the point where we’ve got to make choices between paying our lawyers and trying to run the business,” he said. Excluding Oracle-related expenses from PeopleSoft’s operating costs will allow the company to devote the necessary resources to development, according to Parker.

Conway said the U.S. Department of Justice’s (DOJ) lawsuit to block Oracle’s attempted takeover on antitrust grounds has relieved some of the pressure on PeopleSoft.

“We’re now regaining the use of our second arm,” he said. “We hope the remaining distractions associated with Oracle will be resolved in Q2. Then PeopleSoft will have full use of both arms.”

In addition to its poison pill, PeopleSoft has on its side the DOJ’s opposition to the deal and the European Commission’s (EC) trepidation about it. The EC’s investigation of the proposed acquisition is currently on hiatus while the organization awaits more information from Oracle, but the Commission has already served Oracle with a list of objections.

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