Oracle Opens Fire On PeopleSoft's Takeover Defenses

ousted chief executive Craig Conway

Oracle attorney Michael Carroll grilled PeopleSoft director Steven Goldey in Delaware Chancery Court on the reasons Conway was fired last week, suggesting the board was alarmed over a deposition he gave explaining alleged lies at a September 2003 analyst conference.

Goldey said Conway misspoke in telling analysts that the Oracle takeover bid was no longer a factor in PeopleSoft's ability to write new business.

But he denied that the statements were lies, and said the company moved quickly to file a "corrected" transcript of Conway's statements.

In a deposition taken to prepare for the trial, Conway admitted he had not told the truth to analysts about the impact of a continued Oracle takeover threat on PeopleSoft's sales.

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"I was promoting, promoting, promoting," Conway said at the deposition.

A transcript of the deposition was shown to PeopleSoft's board in recent weeks at the request of Oracle, Carroll said.

Goldey said the deposition contributed to the decision to fire the CEO, but was not the sole cause.

Oracle, a maker of database-management software based in Redwood City, Calif., has been attempting to acquire PeopleSoft for 15 months, offering $7.7 billion for the company.

Oracle has asked for a ruling invalidating PeopleSoft's standard poison-pill, or antitakeover rights measure, and its special money-back-guarantee customer program, which Oracle says could add a $2 billion liability to the acquisition.

On Friday, the U.S. Department of Justice said it would drop its antitrust challenge to the combination of the two software makers.

European regulators said Monday they are continuing to collect data on the proposed deal. If they follow the U.S. lead, PeopleSoft, a maker of business software, will be left with only the takeover defenses that are on the line in the Delaware lawsuit.

Conway is expected to testify Wednesday. He was called as a witness by both sides before he was fired by a board of directors that cited ebbing confidence in him, but denied the decision was linked to his opposition to the deal. He was replaced by chairman and founder David Duffield.

A former lieutenant of Oracle Chief Executive Larry Ellison, Conway has been openly critical of Ellison and the acquisition effort, which PeopleSoft has blamed for its slumping sales.

PeopleSoft, based in Pleasanton, Calif., says in court papers that Conway did not drive the decision to put barricades in place to block the Oracle buy.

Resistance to the deal was the product of decisions by independent directors, and thus entitled to a presumption of validity under Delaware law, PeopleSoft argues.

It's a point Oracle has said it will dispute.

Ellison is also expected to take the stand in an effort to convince the court his company's takeover effort does not pose a threat to PeopleSoft or its customers that would justify the poison pill and customer program.

The customer program requires Oracle to meet high standards in continuing to support PeopleSoft products if it buys the company, or face claims from distraught customers entitled to ask for as much as five times what they spent on PeopleSoft software.

PeopleSoft says the customer program was necessary to calm fears among software buyers that a victorious Oracle would shut off support to PeopleSoft products and force its own wares on them.

The two men who replaced Conway in the president's slot, Chief Financial Officer Kevin Parker and sales chief Phillip Wilmington, are also slated to testify.

In pretrial discussions, Parker was identified as the architect of the customer program, the first versions of which rolled out in June 2003, only three days after Oracle launched a tender offer.

Wilmington will be PeopleSoft's principal witness on customer fears about an Oracle takeover, company attorney Donald Wolfe said in pretrial discussions.

Separately, PeopleSoft Monday raised its forecast for the just-ended quarter, helped by an increased average selling price and strong performances in North America and Europe.

In late morning trading on the Nasdaq Stock Market, shares of PeopleSoft were at $22.37, down 46 cents, or 2 percent. Oracle is offering $21 a share.

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