UPDATE: Oracle increases offer, sues PeopleSoft

Oracle Corp. bumped up its unsolicited offer to buy rival PeopleSoft Inc. from US$5.1 billion to approximately US$6.3 billion Wednesday, while at the same time announcing that it was filing suit against PeopleSoft, its board of directors and J.D. Edwards & Co. for their efforts to stave off the acquisition.

“Oracle remains committed to acquiring PeopleSoft and will not be deterred by management’s maneuvers to maintain control of a company they do not own,” Oracle Chairman and Chief Executive Officer Larry Ellison said in a statement.

Oracle said that it was filing the suit in Delaware Wednesday in response to PeopleSoft and J.D. Edwards’ “collective efforts to eliminate PeopleSoft shareholders’ ability to accept Oracle’s tender offer.”

Using “poison pill” provisions of its shareholder rights plan to increase the cost of the acquisition, PeopleSoft can thwart Oracle’s takeover attempt, even if Oracle is able to win over the majority of PeopleSoft shareholders.

In a conference call on Wednesday, Oracle Chief Financial Officer Jeff Henley called repeatedly on PeopleSoft management to revoke the poison pill, even providing a toll free number for PeopleSoft shareholders to contact the company and urge its management to consider the Oracle offer.

“We’re suing them, but we’re also urging all (PeopleSoft) shareholders to get (management) to face reality that they need to get rid of this pill,” Henley said.

Oracle Executive Vice President Chuck Phillips echoed Henley’s statements, saying that PeopleSoft’s management abandoned its fiduciary responsibility to the company’s shareholders by blocking them from considering Oracle’s offer.

Oracle also claimed to have spoken with holders of a majority of PeopleSoft shares and said they have indicated prices for which they would tender their shares. As a result, Oracle is increasing its all-cash offer to US$19.50 per share, or approximately US$6.3 billion.

The Oracle offer was a “great value” for PeopleSoft shareholders, given the company’s recent declines in revenue, and represented a premium over PeopleSoft’s fair market price for much of the past year, Henley said.

Oracle hoped its increased offer would expedite the acquisition of PeopleSoft, he said.

Henley said in Wednesday’s statement that the company expects a majority of PeopleSoft shareholders to contact the board immediately and “demand the opportunity to accept the offer.”

Those shareholders recognize the need for consolidation in the applications industry and the benefit of the PeopleSoft-Oracle merger in fending off competition from SAP AG and Microsoft Corp., he said.

PeopleSoft representatives could not immediately be reached for comment.

Oracle announced June 6 that it was making its initial US$5.1 billion bid to buy PeopleSoft, just days after the Pleasanton, Calif., enterprise software provider announced it was acquiring J.D. Edwards. Both PeopleSoft and Denver-based J.D. Edwards have revolted against the takeover, and each company filed suits against Oracle last week claiming unfair business practices and interference with customer relationships.

In their conference call Wednesday, Henley and Phillips repeatedly contrasted the Oracle offer with PeopleSoft’s current plans to purchase J.D. Edwards.

Describing the J.D. Edwards deal as one based on unrealistic assumptions about the combined strength of the two companies, Phillips said that Oracle’s merger plan with PeopleSoft was based on more logical assumptions and conservative numbers.

Both men faced numerous questions Wednesday about Oracle’s plans to support PeopleSoft products should the deal go through and about the company’s stated promise to allow customers to migrate free of charge to Oracle’s eBusiness Suite.

In the near term, Oracle would continue to sell existing PeopleSoft customers new seats for their installations should they require them, Phillips said.

Customers will be able to choose whether to upgrade to the eBusiness Suite, Henley said. For those who do, Oracle will make the process “seamless and smooth,” offering no greater challenge than upgrading from one version of the PeopleSoft platform to another, Henley said.

Asked to explain how the company could afford to offer free upgrades for its PeopleSoft customers, Henley said Oracle will look to its business partners to help streamline migration and use offshore development resources to lower the cost of migration.

Despite the flurry of legal activity, Oracle is sticking to its stated July time schedule for completing the transaction, Henley said.

Ignoring the increasingly dark clouds hanging over the takeover attempt, Henley voiced optimism that the skies would clear soon.

“We’re looking forward to meeting with the PeopleSoft board and expediting the whole transaction,” he said.

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