PeopleSoft Board Feels Punch

fire CEO Craig Conway

Assistant Attorney General R. Hewitt Pate, who oversees the department's Antitrust Division, said he has decided not to appeal a U.S. district judge's decision allowing Oracle to proceed with its hostile takeover bid. PeopleSoft, Pleasanton, Calif., issued a statement soon after Pate made his decision known, saying PeopleSoft's board "will meet in due course to review the implications" of Pate's decision.

Also on Friday Oracle, Redwood Shores, Calif., released a highly redacted public version of its prebrief, filed with the Delaware Chancery Court, in its case suing for the removal of PeopleSoft's so-called poison pill and its Customer Assurance Program (CAP). Oracle's case, slated to begin Oct. 4, names PeopleSoft's eight-member board as the defendants.

The poison pill refers to a tactic in which PeopleSoft's board can dramatically increase the number of shares outstanding, making the bid prohibitively expensive. And PeopleSoft's CAP would offer customers refunds of up to five times their license fees should Oracle make major changes to PeopleSoft's products.

In its filings for the court, Oracle essentially argues that the poison pill--typically a holding tactic while a target seeks a "white knight" or other alternative--has been in place too long. Now after 15 months, "... whatever arguments PeopleSoft may now offer for maintaining the pill, insufficient time is not likely to be among them."

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Of seemingly greater concern to Oracle is the CAP, which represents up to $2 billion in potential liabilities. Here Oracle blames PeopleSoft's board for not properly exercising its oversight responsibilities. In its brief, Oracle writes, "This lack of board involvement in the review and approval of the CAP was not only careless, it was intentional. Immediately upon announcement of Oracle's tender offer, PeopleSoft management adopted a shoot-now, answer-board questions-later approach. ... PeopleSoft CEO Craig Conway made the announcement that 'there is no condition' under which PeopleSoft would ever be acquired by Oracle. This was part of a strategy adopted by Conway to fend off the tender offer."

Neither the DOJ's decision or Oracle's brief should come as news to PeopleSoft's management. In his August rulings, U.S. District Judge Vaughn Walker shut down nearly every potential avenue of appeal to the department. And the pre-trial brief—while certainly building on the negative momentum that started with Conway's ouster early Friday—is merely the public preview of a move already set to play next week.

At this stage, Wall Street is beginning to look at the Oracle takeover as a done deal, with the pricing expected to close above $21 a share. "The removal of Conway, one of the deal's most aggressive opponents, may signal some increased willingness to negotiate on the part of PeopleSoft's board," wrote Charles DiBona, Bernstein Research analyst, in his Friday report. "There is some thought that PeopleSoft may continue to fight, having posted stronger-than-expected numbers."

Earlier Friday, PeopleSoft said license revenue for the third quarter is expected to exceed $150 million, far better than the analyst consensus.