PeopleSoft Director To Take Stand At Trial

Plans are to put PeopleSoft director Cyril Y. Yansouni on the stand following the investment banker, Matthew L'Heureux of Goldman Sachs. That will wrap up testimony in a trial that seems to many, including the Delaware Chancery Court judge, to be as much about current business strategy as it is about the legal question of whether PeopleSoft went too far in defending against Oracle's hostile acquisition play.

"I have a feeling that we are part of a process that is part litigative in nature and part business deal, and on both sides. And so it's kind of interesting," Vice Chancellor Leo Strine commented from the bench earlier this week.

PeopleSoft's investment banker L'Heureux of Goldman Sachs has had much to say about how Oracle's offer looked from inside the boardroom at PeopleSoft in the past, but little or nothing about how it looks now, with an offer of $21 a share on the table.

Earlier this week, Kevin Parker, PeopleSoft co-president and chief financial officer, said 2004 earnings are likely to come in around 70 cents a share, a drop of more than 20 cents since PeopleSoft last ran the earnings numbers in evaluating various offers from Oracle.

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The February offer of $26 a share marked a high point in Oracle's 16-month pursuit of PeopleSoft, but Goldman Sachs told the board it could do better, L'Heureux said Thursday.

At that time, PeopleSoft's investment bankers reckoned that Oracle could pay more than $45 a share for PeopleSoft and still have a profitable deal, L'Heureux said.

It was the latest shot in a volley of calculations fired off during the trial, which has featured appearances on the witness stand from those at Oracle with the power to raise or lower the current $21-a-share offer, and those at PeopleSoft with the power to say yes or no.

Oracle chief executive Lawrence Ellison said internal talks leaned toward lowering the price. But he admitted that some numbers from Oracle's own investment bankers said $21 would be a low price for PeopleSoft back in June 2003, when Oracle opened the bidding at $16 a share.

PeopleSoft's investment bankers calculated in June 2003 that the acquisition would add to Oracle's earnings even if it paid between $26 and $31 for each PeopleSoft share.

In spite of the near certainty that PeopleSoft will not hit the 2004 earnings numbers that were the basis for earlier price calculations, PeopleSoft's directors Steven Goldby and A. George "Skip" Battle appeared unready to fold and take the current offer.

Shareholders who want to sell for $21 a share can do so on the open market, Battle said Thursday.

The 2004 earnings shortfall isn't news to the market, which may be weighing other factors in trying to guess how much Oracle would pay and how much PeopleSoft would take.

Oracle is trying to keep pace with larger rival SAP AG, Oracle executives said, and has long wanted PeopleSoft's software-applications customers for revenue and bulk.

PeopleSoft has been able to write new business during the long contest, and credits the customer protection program it put in place soon after Oracle announced its hostile bid in June 2003.

Oracle is asking the Delaware court to invalidate the customer program as an unacceptable barricade to a deal.

PeopleSoft says the program has been vital to its ability to survive, assuring customers that their multimillion dollar investments in PeopleSoft enterprise software won't be lost in an Oracle takeover.

Revised five times since it was created, the customer program gives companies that buy PeopleSoft products the right to ask for from two times to five times their money back if Oracle fails to support the products after an acquisition.

Publicly, Oracle executives have been saying for months that the customer program is no block to a deal, and that they can meet and better the support standards.

In court, Oracle said it feared having to cut deals with hundreds of distraught PeopleSoft customers under a program that posed unacceptable risk, and threatened to expose it to liability of up to $2 billion.

Shares of PeopleSoft, which is based in Pleasanton, Calif., traded Friday morning at $21.06, down 2 cents, on the Nasdaq Stock Market.

Redwood Shores, Calif.-based Oracle shares traded Friday morning at $12.07, up 7 cents, on the Nasdaq.

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